The Investment Column: Electrocomponents' growth fails to win over investors

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Our view: Hold

Share price: 170p (-3p)

The industrial components group Electrocomponents, which yesterday posted upbeat full-year figures to the end of March, is in great shape, says the company's chief executive Ian Mason. It is increasingly turning its attention to its international business, where it generates 10 per cent annual compound growth and because of this the future is bright, Mr Mason says.

What is more, speak to the company, which distributes electrical, electronic and industrial supplies, and you would think there was no credit crunch at all. Or at least it is not affecting Electrocomponents. Mr Mason says the group has a "strong platform for growth" without any real impediments. Pre-tax profits were up 9 per cent, while international net profits increased by 11 per cent.

However, it is not that clear cut: in the eight weeks since the end of March, the group says revenue in its international business has been growing at 5 per cent, against 8 per cent during the second half of last year. Its UK revenue growth is actually down by 2 per cent.

Moreover, investors have had to endure, rather than enjoy, the last 12 months, during which the stock has fallen from more than 300p. Analysts at Seymour Pierce say current trading is disappointing and the stock is unlikely to move any time soon. The watchers say the group should be aiming for a share price of 210p and has the stock on hold.

Electrocomponents says it trades at a 20 per cent discount to its rival Premier Farnell, and its operations in Asia give it an operational advantage. Watchers at UBS say that Premier Farnell's premium is justified "given the higher growth and greater evidence of company-specific drivers".

Electrocomponents is growing and its commitment to its overseas operations is the right course of action, especially with a slowing British economy and the huge increases in demand in Asian markets. The challenge for the firm is transferring its decent performance into the share price, which it has found difficult. If it can do that, investors should buy, but they still need convincing. Hold.

Topps Tiles

Our view: Sell

Share price: 81.5p (-9.5p)

The tiling retailer Topps Tiles, like a whole raft of British high street shops, is having a horrible time. Anyone not yet convinced the credit crunch is biting need only to look at the first half figures posted by Topps yesterday. Despite total revenues rising by 4 per cent to £106.3m, pre-tax profits were nearly £3m down to £15.8m and the dividend has been slashed by 20 per cent.

Topps' chief executive Matthew Williams says retail markets are challenging, by which he means the group is feeling the strain. While the company is forever looking at how it can cut costs, he adds, he is loath to risk "cutting into the group's muscle when attempting to trim the fat".

In times of economic uncertainty, DIY retailers tend to suffer less as consumers improve their existing home rather than move. Mr Williams admits this might be partly true but, in practice, it only makes things less bad. Watchers at Kaupthing have cut their earnings per share forecast by 13.5 per cent this year and reckon the shares will fall as low as 70p.

So, a "sell" then? Analysts at Dresdner Kleinwort, argue not, saying things cannot get any worse and that a doomsday scenario is already priced into the stock, which has fallen from a year high of 260p and should, they say, reach 155p. "While we can understand investors' reluctance to expose themselves to any stock with such obvious correlation to the housing market, we maintain that the business fundamentals are strong and the valuation upside potential compelling for those willing to look through the gloom."

It would take a brave investor to agree, but do keep an eye on Topps Tiles. Sell.

Jarvis

Our view: Buy

Share price: 26.5p (+2p)

If you are a long-term investor in the engineering company Jarvis, you either do not care about your equities or you have forgotten you had the shares in the first place. If you are in the second group, you just might be in for a very nice surprise.

Over the past five or six years, the rail and plant services group has gone from basket case to a steadily improving company that is quietly saying that the next few years could be very good.

In 2005, shareholders were forced to accept a debt for equity swap which left them with just less than 5 per cent of the company. The group's market capitalisation has fallen from more than £1bn five years ago, to £52m today.

However, analysts at Brewin Dolphin upped its recommendation to "buy" yesterday, setting a target share price of 30p, as the group posted an annual £4.5m profit against a loss of £13.1m last year.

The Government and Network Rail have announced big increases in rail spending over the next few years, which can only bode well for the group. The Jarvis chief executive, Richard Entwistle, refuses to discuss talk of a takeover but the fact that others are now interested should encourage buyers. Buy.