Jefferies upgrades TI Fluid Systems on valuation

Jefferies upgraded TI Fluid Systems on Tuesday to ‘hold’ from ‘underperform’, mainly on valuation grounds, with the share price down around 20% since January.

“There is still plenty of uncertainty around FY23F, and this year will be critical for TIFS in terms of improving execution and regaining market trust, but we feel expectations have been set sensibly, and see downside risk as priced in at these levels, with the stock trading at a circa 20% discount to peers, which we expect to revert to the 15% LTA,” the bank said.

Jefferies said the company’s FY22 results contained no major surprises, and it felt the level of disclosure was much improved.

"When we look to FY23F, TIFS is guiding to 0-1% pricing, and flat global light vehicle production (GLVP) volumes which is slightly more cautious than average peer commentary," it noted.

"Management also expects the group to return to revenue outperformance, which we see as realistic, given the bulk of FY23F GLVP growth is likely to come from the US/EU, rather than China."

Jefferies said it retains "a degree" of scepticism around TIFS's upbeat expectations on cost recovery, given more bearish commentary from peers and labour/energy pressures, and has reduced its FY23 EBITA margin forecast slightly to 5.9% from 6.1%, versus new guidance of more than 6%.

Overall, however, Jefferies said it believes the group has set expectations for the year relatively sensibly, "and as a result, although industry conditions clearly remain volatile, we see it as better-positioned than last year to avoid major disappointments".

Jefferies has a 100p price target on the shares.

At 0935 GMT, the shares were up 4.4% at 96.80p.