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By | Joe Fay 26th April 2010 11:17

Tech disties get clean bill of health from ratings agency

The recovery starts here

Ratings agency Fitch has given the IT distribution market a "stable outlook", predicting modest sales growth this year as corporate IT demand ticks up.

The ratings agency profiled five of the major global disties for its Distribute IT: Information Technology Distributors Industry Review and Outlook report.

Overall it declared the outlook for the disties to be "stable, underpinned by a more optimistic view on industry operating profiles, offset by expectations of moderate deterioration in liquidity and credit profiles as well as heightened event risk, particularly for acquisitions".

It said it expected them to show modest sales growth this year - low to mid single digits - as corporate demand improves, "driven by a more stable economic backdrop and growth in emerging markets. EMEA will be the last market to stabilise.

"That rise in sales should be result in improved operating profitability, because of their positive operating leverage and "abatement of cyclical gross margin pressure."

While smaller, local disties might benefit from the improving market as a whole, it's an open question whether their balance sheets are in as good nick as the big five.

The findings are significant as the credit ratings of Fitch, and other agencies, affect the disties' ability to fund their business and extend credit to resellers.

The disties' own financial discipline, even in a recession, means their "credit profiles are very strong" said Fitch, though there should be some deterioration this year as the stronger players indulge in some M&A action as cash generation declines.

Fitch's report probed Anixter, Arrow Electronics, Avnet, Ingram and Tech Data, all of which got the "stable outlook" label, though their specific ratings ranged between BB+ and BBB-. BBB rates as "good credit quality, while BB is speculative.

The reports comes just ahead of the Global Technology Distribution Council's annual investor conference in New York next week. ®

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