FTSE 100 incumbent Electrocomponents (LSE:ECM) could be in for an exciting 2022 and beyond. Should I add the shares to my holdings? Let’s take a look.
Promotion to the FTSE 100
Electrocomponents supplies and distributes electronic, electrical, and industrial supplies and services to technical users and engineers across a multitude of industries. Some of these include automotive, IT, health and safety, and rail.
Electrocomponents recently joined the FTSE 100 due to a share price rally off the back of positive performance and market sentiment. As I write, shares are trading for 1,101p, whereas at this time last year shares were trading for 907p. This is a return of 17% across 12 months. Looking further back, the stock has returned close to 130% over a five-year period and has comfortably surpassed pre-pandemic levels.
Exciting 2022 ahead
All the signs point towards a fruitful year ahead for Electrocomponents. Firstly, it operates in a high growth market which is estimated to be worth close to £400bn. Even a small slice of this could be lucrative for Electrocomponents. In relation to this, there isn’t actually a single dominant player in the whole market which means there is a gap for one of the businesses, potentially Electrocomponents, to claim that mantle. It is believed that the top 50 businesses only account for 30% of the total market. There is definitely an opportunity here for Electrocomponents, and the hype surrounding its recent entry to the FTSE 100 could help boost profile and performance.
Electrocomponents currently accounts for 1% of the whole market and 5% of the UK market. It does have a competitive edge, however. It has a larger distribution network compared to most of its competitors. Electrocomponents has 12 distribution centres that serve 80 countries worldwide. This could help increase its customer base and boost performance and financials.
Electrocomponents recent and historic performance has been excellent. I understand past record is by no means a guarantee of future performance. Looking back, profits have risen an average 40% per year since 2016. Its most recent trading update, released last week for the third quarter ended December 2021, was positive too. Q3 like-for-like revenue grew by 21%. Key markets such as Germany and the US performed above expectations after re-configuring teams and investment to boost performance.
Risks and verdict
Macroeconomic factors are one of the biggest threats to Electrocomponents’ progress in 2022 and beyond. Supply chain issues as well as rising costs could affect performance and financials. This could definitely affect investor sentiment and share prices too. I noted that competitors in the marketplace are all vying for the spot to be the biggest fish in the pond. With so many players in the market, Electrocomponents could see performance affected.
I believe Electrocomponents is a worthy addition to the FTSE 100 and 2022 could be an excellent stock for my holdings. I would add the shares at current levels. It pays a dividend that would make me a passive income and seems to be on a roll in terms of performance and exceeding expectations. I think this could continue in the medium to long term ahead.
