Rotork 'underperform' rating unchanged, target price lifted by Jefferies

Jefferies maintained Rotork’s rating at ‘underperform’ on Monday but raised its target price to 170p from 155p based on a higher 2017 forecast for the British manufacturer.

“Markets are difficult and this is unlikely to change soon, there is pricing pressure, margins/returns are under pressure and management still seem reticent to be tough on costs,” Jefferies said.

The broker said its forecast for earnings per share (EPS) in 2016 move down to 8.90p from 9.10p but 2017 moves up to 9.40p from 9.30p due to foreign exchange tailwinds.

Rotork’s first half was in line with the consensus forecast but below Jefferies expectations. Pre-tax profit and EPS fell after a period of tough trading and a drop in margins.

Jefferies believes Rotork faces a tough second half and full year 2017, given recent oil price declines.

“FX and acquisitions are tailwinds and there will be additional cost savings, but the risk of deferrals, falling order intake and further pricing pressure, along with the significant operational gearing that is inherent in the business concerns us,” Jefferies said.

“We are happy to reiterate our Underperform recommendation in this note. We understand the risks attached to this stance, but do not believe that Rotork will be acquired and although there is an FX tailwind developing (Rotork's competitive position is also improving due to FX), we believe there are risks attached to our forecasts and we need a lot of convincing before we contemplate a more positive stance.”

Shares rose 0.84% to 205p at 1002 BST.