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JPMorgan upgrades Spectris to 'overweight', expects strong second half performance
A lacklustre share price performance in 2017 for precision instruments supplier Spectris, while partly driven by a lack of earnings growth relative to the sector, was mainly due to the sluggish organic growth seen from the firm early in the year.
However, with growth picking up throughout the second half of the year, analysts at JPMorgan Cazenove tapped the group as a solid candidate to have ended the year on a positive note and forecast stronger profit growth going forward, which led the analysts to raise their recommendation for the shares from 'neutral' to 'overweight'.
JPMorgan said the benefits of cost-cutting, organic growth of at least 2.5% and boosts from acquisitions throughout the year should help improve operating profit by around 25% between 2017 and 2019.
Spectris was forecast to post flat operating profits for the year, despite further revenue growth, but come twelve months later, JP Morgan estimated operating profits to move ahead no less than 14% and predicted operating profit growth of 12% in 2019.
The analysts said, "Over the past 18 months, Spectris has completed five acquisitions, the most significant of which were Millbrook and Concept Life Science which deliver testing services to the auto and pharma industries, respectively. We expect the annual number of new model launches by the auto industry in Europe to rise by almost 50% between 2017 and 2020."
"Overall, we expect this to trigger a re-rating of the group. With the shares trading at a discount to the sector and with 16% upside potential our revised Dec-18 price target of 2,900p (was 2,800p)," they concluded.
As of 1430 GMT, shares had grown 2.42% to 2,544.00p.