Berenberg lowers target price on Rotork

Berenberg noted that after Rotork issued a trading update for the four months to 31 October on Thursday, share prices declined 7% on the day as despite demand remaining strong, supply chain constraints resulted in a downgrade to full-year 2021 estimates due to an anticipated revenue slippage into 2022.

The German bank, which reiterated its 'buy' rating on the stock feels this offers investors an attractive entry point, given that the oil and gas sector was edging closer to a pickup, the methane reduction opportunity had intensified in recent weeks following COP and that there was scope for 2022 to be "a transformational year" for the group.

"We see a scenario where FY 2022 could turn out very positive for Rotork. From a top-line perspective, a combination of a record order book heading into Q1, a potential recovery in oil and gas and tailwinds from methane reduction creates scope for an upside surprise," said Berenberg.

"From a margin standpoint, we note that underlying drop through at the H1 stage was 60%, however temporary supply chain disruption meant actual drop through was circa 25%. While it is difficult to predict the exact timing of the supply chain headwinds fading, we feel Rotork is well placed to accelerate when headwinds begin to ease."