How has Electrocomponents managed to complete two recent acquisitions?

Summary

• Electrocomponents Plc had reported a decline in revenue of 7.1% during H1 FY21 ended on 30 September 2020.
• ECM had acquired Synovos for £110 million on 12 January 2021.
• The digital sales contributed 62% of total revenue during H1 FY21.
• The sales across all three geographies had demonstrated a positive growth during the four-month period from 01 October 2020 to 31 January 2021.

Electrocomponents Plc (LON:ECM) is the LSE listed industrial stock. The Company is the leading service distributer based out in the UK. ECM’s shares have generated a return of about 34.58% in the last 12 months. The Company is listed on the FTSE 250 Index.

Business Model

ECM is the global omni-channel solutions partner for the suppliers and industrial customers. The Company had operations in 32 countries. It had over 7000 employees and more than 1 million customers.

(Source: Company website)

The Company had three broad geographic segments –

• Europe, Middle East and Africa (EMEA) – It accounted for 62% of total H1 FY21 revenues.
• Americas – It represented approximately 27% of the Group’s revenue during H1 FY21.
• Asia Pacific – It had contributed the remaining 11% of total revenue during H1 FY21.

The brand portfolio of the Company is shown below –

(Source: Company website)

Trading Update (for four months period from 01 October 2020 to 31 January 2021 (4M H2 FY21) as on 08 February 2021)

(Source: Company result)

• The Company had delivered like-for-like sales growth across all three broad geographic regions during four months period from 01 October 2020 to 31 January 2021 (4M H2 FY21) compared to the similar period of the prior year.
• The sales across all three geographies had demonstrated a massive recovery during the period and witnessed a turnaround from decline shown during the first two quarters to a period of growth during 4M H2 FY21.
• The RS PRO division had achieved 14% LFL sales growth during the period.
• The UK, Germany and France had delivered encouraging business performance during the period.

Recent News

On 13 January 2021, ECM updated that it had completed the acquisition of Synovos on 12 January 2021 for a total consideration of £110 million with an objective of accelerating the pace of growth. This acquisition would target various revenue synergies  of RS PRO, Allied and Synovos from America region. Synovos is one of the most prominent players of integrated supply solutions in America.

On 11 December 2020, the Company announced that Bertrand Bodson would be quitting from the position of Non-Executive Director effective 31 May 2021.

On 10 December 2020, the Company had completed its equity fundraising activity of approximately £180 million. It is aiming to keep net debt to adjusted EBITDA within 1x during FY21 ending 31 March 2021.

On 10 December 2020, ECM had acquired Needlers for £40 million on a debt-free, cash-free basis. Needler is the leading UK-based provider of Safety products and PPE. The Company had funded this acquisition out of £180 million equity raise.

H1 FY21 Financial Highlights (for six months period ended 30 September 2020, as on 10 November 2020)

 (Source: Company result)

• The revenue of the Company was plunged by 7.1% from £978.7 million during H1 FY20 to £908.9 million during H1 FY21 adversely impacted by Covid-19 as most of the clients undergone temporary closures during the lockdown period.
• The digital sales contributed 62% of total revenue during H1 FY21. The Company had demonstrated decent growth in web traffic across B2B and B2C clients, mainly driven by searches related to PPE products.
• ECM had outperformed the Industrial market and maintained substantial market share in the Electronics industry.
• ECM had shown revenue decline in all three major geographies during H1 FY21 compared to an equivalent period of the prior year.
• On the profitability front, the operating profit was plunged by 35.4% excluding reorganization costs. The adjusted operating profit margin had demonstrated a decline of 230 basis points to 8.5%. The earnings per share remained 9.5 pence during H1 FY21.
• ECM had shown a significant rise of cash generated from operating activities as it stood at £124.3 million during H1 FY21 reflecting cash generative tendency of the Company to tackle the uncertainties related to Covid-19 pandemic.
• ECM had reduced its net debt by £105.9 million to £114.8 million during H1 FY21 from the comparable period of the prior year.
• The Board had paid an interim dividend of 6.1 pence per share with respect to FY21 on 29 January 2021, representing 40% of FY20 proposed final dividend.

Share Price Performance Analysis of Electrocomponents Plc

(Source: EODHD/Others, chart created by Kalkine group)

Shares of Electrocomponents Plc were trading at GBX 938.00 and were up by close to 0.05% against the previous closing price as on 08 February 2021, (before the market close at 11:40 AM GMT). ECM's 52-week Low and High were GBX 397.30 and GBX 959.00, respectively. Electrocomponents Plc had a market capitalization of around £4.41 billion.

Business Outlook

ECM had anticipated its adjusted operating profit before tax during FY21 ending 31 March 2021 to be ranging from £171.1 million to £180.4 million as the growth in revenue would be neutralized by rising operating costs. The Company had continued to witness increased Covid-19 related cost, freight cost in particular, during H2 FY21 as well. The Company had shown confidence in its strategy and gave special emphasis on customer relationship, which is driving the revenue growth and strengthening the growth trajectory. ECM had anticipated an adverse impact of £5 million on FY21 revenue due to lower trading days because of Covid-19 pandemic.