Exane upgrades Meggitt and Spectris, downgrades Rotork
Exane BNP Paribas took a look at the UK capital goods sector, updating its ratings on three stocks.
Aerospace and Defence
10,853.21
16:54 03/05/24
Electronic & Electrical Equipment
9,879.06
16:54 03/05/24
FTSE 100
8,213.49
16:59 03/05/24
FTSE 250
20,164.54
17:00 03/05/24
FTSE 350
4,515.50
16:54 03/05/24
FTSE All-Share
4,469.09
17:14 03/05/24
Industrial Engineering
13,534.47
16:54 03/05/24
Meggitt
798.80p
16:52 12/09/22
Rotork
325.00p
16:34 03/05/24
Spectris
3,306.00p
16:40 03/05/24
It said that UK capital goods names are far more exposed to Oil &Gas than their European counterparts.
“This exposure to what was once the sector’s fastest growing end market explains why our names outgrew and outperformed their European peers in the post crisis era,” said Exane.
Having adjusted its forecasts to reflect the 2016 outlook for O&G end markets, it now expects UK capital goods stocks to grow at a slower rate than their European peers. “We see this as having implications for their relative performance,” it added.
Exane upgraded Meggitt to ‘neutral’ from ‘undeperform’ noting that the stock is trading close to its 475p price target. However, it cautioned that renewed speculation in respect of a possible takeout is likely to limit the scope for further underperformance.
Exane upgraded Spectris to ‘outperform’ from ‘neutral’ and raised the target price to 2,500p from 2,375p.
The broker said it expects Spectris to continue to deliver above-average rates of cash conversion and for management to seek to deploy this money towards value accretive acquisitions.
“All of this deserves a premium,” said Exane, noting that the stock has performed in line with the sector in recent months, but further acquisitions could deliver EPS momentum beyond the bank’s current forecasts, driving outperformance in the coming months.
The bank downgraded Rotork to ‘underperform’ from ‘neutral’ and cut the price target to 220p from 245p.
“After adjusting our forecasts to reflect the findings of our O&G industry analysis, we now sit 12% below the Street for Rotork estimated 2016 earnings per share,” it said.
The analysts noted that Bloomberg consensus continues to model Rotork sales to rise in 2016, but Exane reckons that while the company possesses a robust business model, sales and earnings are unlikely to prove quite so resilient.
It added that the stock has outperformed Exane’s full capital goods coverage by 13% over the past three months and 16% over the past 12 months.