Deutsche Bank hikes targets on UK capital goods names

Analysts at Deutsche Bank hiked their target prices on several names in the UK capital goods space ahead of the start of the earnings season for the group, with Spectris's results scheduled for release on 14 February.

Jonathan Hurn and Jonas Hoersch expected the positive trends on show among European firms from the space to repeat themselves in the case of the UK-listed companies.

Said trends included fourth quarter strength in China, concrete evidence of an improved short cycle and orders in the Oil&Gas and Mininig end markets.

Both improved conditions in key end markets and supportive FX tailwinds were expected to hold the sector aloft.

Its 'top picks' in the space were Bodycote, Smiths Group and Spirax Sarco. To that list the investment bank added shares of Spectris based on the structural (Project Uplift) and cyclical (recovery) opportunities evident for 2017.

For their favoured O&G play, Weir Group, Deutsche Bank analysts upgraded their group 2017 EBITA forecast to £320.0m, putting them 17% ahead of the consensus.

"On 15x 2017 EV/EBITA vs. a historical through cycle average of 11.9x, sector multiples already discount a cycle recovery. Our preference remains for cyclical
names offering consensus earnings upside and/or those with a strong self-help opportunity."

Deutsche Bank raised their targets on Bodycote from 685p to 760p, on Rotork from 226p to 255p, on Vesuvius from 389p to 450p and on Weir from 1976p to 2220p.

Bodycote and Weir were kept at 'Buy' and Rotork and Vesuvius at 'Hold', while Spectris (target price: 2795p), Spirax Sarco (target price: 4970p) and Smiths (target price: 1587p) were all kept at 'Buy' with unchanged targets.