Shares in Premier Farnell and Electrocomponents could once be trusted to trade in line. As the biggest European players in a traditionally cyclical business – the distribution of electronic components – their stock market values tended to rise and fall in uncanny sympathy through boom and bust.

But recently that relationship has broken down. Whereas Electrocomponents’s shares have fallen by a third over the past 12 months, those of Premier Farnell have risen modestly, outperforming the FTSE all-share by more than 20 per cent in the process.

Divergent dividend policies are part of the explanation. Whereas Electrocomponents has cut its payout, Premier raised its dividend in March for the first time in ten years. But that outperformance also owes much to the three-year growth strategy put in place by Harriet Green, Premier’s chief executive, for which yesterday’s first-half results neatly marked the halfway point.

Her three-pronged approach – targeting design engineers in niches which make the greatest use of electronic gadgetry, pushing more sales through the internet and expanding in India, China and Eastern Europe – seems to be having the desired effect. Most notably, Premier is taking share in its biggest markets: in the UK, continental Europe and, most importantly, America, which accounts for more than four fifths of revenues.

Sales there rose 5.5 per cent, against a 3.8 per cent retreat in the semiconductor market, the closest proxy to Premier’s fortunes. Most of the advance appears to have come at the expense of smaller distributors, which have struggled to compete with the company’s inventory of 400,000 products, a direct presence in 24 countries and a website that is able to couple products with extensive data on technical specifications and compliance with local regulations.

The problem is that the company’s growth in absolute terms continues to slow: from 7 per cent to 6 per cent to 5 per cent over the past three trading quarters. This suggests that, although Premier is better insulated from the economic cycle than before, it is by no means immune. A strengthening dollar helps, as does Premier’s steady repurchase of its preference shares. But at 176p, or 12 times current-year earnings, and yielding 5 per cent, the shares can be no more than a hold.

Galliford Try

Galliford Try builds wind farms and flood defences, and maintains schools and hospitals, but it is housebuilding that remains its biggest activity and which has pulled its shares down 60 per cent in the space of a year.

The comfort from yesterday’s full-year results is that, unlike many of it peers, Galliford is still selling houses at a reasonable rate – about 30 a week, not too far adrift from the 36 a week it was shifting in the 12 months to June 30. Galliford’s trick has been its speedy decision to sacrifice operating margins for sales by slashing prices by about 20 per cent. Coupled with a moratorium on land purchases, that tactic meant the company became highly cash generative last year, with net debt falling from £99 million to just £2 million.

Galliford has also been able to maintain its dividend at 3p (a level at which it is more than twice covered by this year’s forecast earnings), and another feature which distinguishes it from the pack.

The bad news is that growth in Galliford’s social housing division, where profits rose 26 per cent last year, has started to slow. It appears that many social landlords have bought unsold stock from private housebuilders and demand for purpose-built affordable housing has suddenly slackened.

Inevitably, the short-term direction of house prices remains critical to Galliford’s fortunes. The longer-term opportunity is the scope that an ungeared balance sheet and £450 million of banking facilities gives it to start buying land at knockdown prices without having to issue fresh equity – a capability that should categorise the winners when the housing upturn eventually comes.

For now, profits are forecast to head backwards over the next two years, while Galliford’s scope to keep selling houses at current rates may be hurt by heavier discounting by its bigger rivals. Neither at 62p, or nine times current-year earnings, nor yielding 4.8 per cent, is the valuation especially compelling. Avoid.

Tenon

There was a time when Tenon, the tax advisory and corporate restructuring specialist, looked sorely in need of its own services.

After a period of vigorous expansion – it was one of three AIM companies floated at the turn of the decade to consolidate smaller accountancy firms – it was left with debt four times that of its stock market value and a £114 million post-tax loss. But over the past five years it has got to grips with working capital, paid down debt and consistently produced double-digit gains in sales and profits.

Those virtues were on display in yesterday’s full-year results: turnover up 17 per cent, earnings up 19 per cent, the dividend raised 17 per cent and net debt down to £9.1 million. Revenues from corporate finance rose 62 per cent: a figure to put investment banks to shame.

That strength will be difficult to sustain, as will Tenon’s so-far resilient sales of personal financial services. The counterweight is provided by the recent growth through acquisition of its corporate recovery practice – where revenues are running at £40 million, making Tenon the same size as the better-known Begbies Traynor, and giving it ready leverage to economic downturn. The recent retrenchment of Grant Thornton and BDO Stoy Hayward from its niche – advising private entrepreneurial companies – should also help.

At 58¾p, up ½p, or eight times this year’s earnings, buy on weakness.

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