Rotork PLC a ‘buy’ again for Peel Hunt over growth prospects
The broker boosted target price forecasts to 400p from 300p as Rotork is expected to catch up with its peers
PLC () was upgraded to ‘buy’ from ‘add’ by Peel Hunt with a significant target price increase to 400p from 300p.
The industrial instruments maker is expected to deliver 5-9% organic earnings per share (EPS) growth from the current financial year, with the broker upgrading profit before tax forecasts by 14-19% up to 2022.
Analyst said organic growth could surprise on the upside against conservative estimates from the second quarter of 2021 onwards due to a recovery in Site Services, new product development, sales force realignment and continued customer focus on automation, for which electric actuators are a key beneficiary.
However, COVID-19 shutdowns are still seen as a key risk in the near term.
Meanwhile, the margin expansion is expected to underpin earnings growth, as the firm’s programme to drive lean improvement is expected to deliver profit and cash flow benefits, achieving £17mln cost out by the first half of financial year 2020.
The broker also expects Rotork to restart its mergers and acquisitions programme this year, with bolt-ons in the range of £10-200mln seen as most likely.
“We believe there is scope for ROR to catch-up with some of the more expensive UK Engineers that have rerated faster,” analysts commented.
“We believe this is partially due to 50% of ROR’s customers being in oil & gas. However, a large proportion of these sales are into water applications and, trading in line with the sector, we see scope for a quality business like ROR to restore its usual premium.”
Shares rose 3% to 345p on Thursday late morning.
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