JPMorgan Cazenove initiates coverage of Diploma, Electrocomponents

29th May 2019 14:45

(Sharecast News) - JPMorgan Cazenove initiated coverage of Diploma and Electrocomponents on Wednesday at 'overweight' and 'neutral', respectively, as it argued that both are "high-quality operators compared to most other distributors".On balance, however, JPM said it prefers Diploma for its M&A record, lack of cyclicality and consistency of results."This is reflected in the group's FY1 price-to-earnings ratios with Diploma on 22.7x and Electrocomponents on 15.6x," it said.It noted that since 2005, Diploma has generated an earnings per share compound annual growth rate of about 15%, with approximately a third of this being organic.As far as Electrocomponents is concerned, JPM said that following a period of underachievement, the company has undergone management changes and a dramatic turnaround in fortunes. In particular, revenue growth has accelerated and operating margins have increased by around 500 basis points.Part of this improvement is due to market trends, rather than company-specific factors, JPM said, adding that the market backdrop us now beginning to deteriorate.JPM set a 1,678p price target on Diploma and 591p on Electrocomponents.At 1455 BST, Diploma shares were up 1.5% at 1,496p and Electrocomponents shares were down 2.1% at 608.60p.