Rotork offers improved risk-reward for Goldman Sachs

With Rotork shares the worst performing stock in the European capital goods sector over the last quarter due to oil price declines and cost inflation concerns, Goldman Sachs sees a buying opportunity as the risk-reward ratio shifts into more attractive territory.

"Growth could surprise in upstream and midstream, led by momentum in the US, Middle East and China," said Goldman, with its 12-month price target of 280p offering around 20% upside, leading to the reiteration of its 'buy' recommendation.

Furthermore, pricing has stabilised and while downstream capital expenditure remains challenging there are green shoots appearing in maintenance, repair and overhaul.

Excluding oil and gas, US water investment is an "obvious catalyst", although there are "few positive signs" in the power market.

An EBITDA forecast of £164.3m for the 2018 financial year is 10% ahead of the consensus forecast, but improved order intake against modest oil services estimates "should drive consensus higher".

Goldman noted that while end markets have stabilised, only 20% of sell-side analysts are 'buy'-rated.

Catalysts for the oil & gas market include ongoing US onshore recovery, further midstream procurement from the likes of the Dakota pipeline and the Keystone XL pipeline, Middle East capacity coming online, and encouraging China capex signs.