JPMorgan Cazenove gave a lift to Electrocomponents PLC (LON:ECM) on Thursday, upgrading its rating for the FTSE 250-listed firm to ‘overweight’ from ‘equal-weight’ based on an anticipated improvement in trading, both due to market and company-specific factors.
The US investment bank also raised its target price for the mid-cap electronic components distributor to 774p from 651p, with the shares currently trading at 700.20p, up 2.1% on Wednesday’s close.
In a note to clients, JPMorgan’s analysts said they expect the trading improvement to be mainly driven by Electronics, with the group’s Industrial market likely to remain slow, albeit supplemented with market share gains.
They also pointed out: “We are conscious of the uncertain situation regarding the CEO’s health, though assume a return in early 2020.”
The analysts made no change to their forecasts for Electrocomponents, maintaining estimates for organic growth to accelerate to 4.6% in full-year 2021, up from 3.7% in 2020, albeit with only 40 basis points of operating margin growth.
They calculated that each additional 1% of revenue growth produces around 3% higher operating profit for Electrocomponents.