Deutsche Bank upgrades IMI, downgrades Bodycote
Deutsche Bank upgraded its stance on IMI on Monday and downgraded Bodycote as it took a look at the European capital goods sector.
The bank expects sector growth to peak around the first quarter of 2018 as Chinese economic data show signs of weakening and comps get tougher for short-cycle businesses.
"Given we already need to look beyond 2018 for valuation support, we expect later cycle companies with exposure to process/hybrid industries (international O&G, petrochem, copper mining, food & beverage, etc) to perform better," it said.
Deutsche Bank upgraded its stance on IMI to 'buy' from 'hold' and lifted its price target to 1,475p from 1,285. The bank said it estimates around 40% of IMI is exposed to late cycle markets, predominantly at Critical, with this division bottoming in 2017 and offering scope for recovery surprise across margin and revenue as it rebounds over the next 18-24 months.
In, addition, it pointed to an undemanding valuation versus sector, with 12-month forward price-to-earnings seeing no sector relative re-rating. It also said that M&A remains firmly on the agenda, which will supplement organic growth.
It downgraded Bodycote to 'hold' from 'buy' but left the price target unchanged at 990p.
Among other things, it pointed out that cost inflation could offset scope for profit upgrades and highlighted the fact that the stock re-rated strongly this year and is now trading on 18x 2018 earnings, in line with the UK sector average and "up with events".
At 1510 GMT, IMI shares were up 2.6% to 1,272p and Bodycote was flat at 871.50p.