HSBC upgrades Electrocomponents, sees more value at Premier Farnell

17th Feb 2016 13:42

(ShareCast News) - HSBC upgraded Electrocomponents to 'buy' and reiterated the same recommendation on fellow electronic distributor Premier Farnell, though it acknowledged the trading environment will continue to be weak in the short run.Electrocomponents, lifted from its prior 'hold' rating, was given an increased target price of 250p, while Premier Farnell's target price was cut by 10p to 145p that still offers much upside from the 102p close on Tuesday.The share prices of both companies reflect investors' concerns of weak trading, stemming from China's slowdown and weak EM currencies, HSBC said, as well as a deep fear that margins are under structural and sustained pressure.However, both have comprehensive self-help plans to stabilise margins and cut costs, the bank noted, though remain exposed to a stronger dollar and weaker EM currencies."But even with weak trading we see value," HSBC's analysts wrote, with Premier Farnell currently trading at more than double the historical discount to its peer's p/e ratio."The market is assigning a higher margin risk to PFL. The company has been without a permanent CEO since August 14th 2015, the market is concerned that it is taking so long to find a CEO prepared to take the role."But, despite this, the relatively cheaper valuation makes Premier Farnell the preferred choice.