RS Group PLC (LSE:RS1) received a price target upgrade from Deutsche Bank, which raised its forecast from 760p to 800p and reiterated its ‘Buy’ recommendation.
The broker cited stabilising like-for-like revenues after a three-year decline, with prospects for renewed growth as the industrial production cycle turns.
Operating margins, currently at 9%, remain below the company’s cycle average of 10% and well under the 13.5% peak, leaving room for recovery.
Analyst David Brockton highlighted improving purchasing managers’ index (PMI) data as a positive signal, though noted a lag before RS benefits.
“RS's growth reacts most strongly to PMIs with a one-quarter lag,” he said, adding that cyclical tailwinds explain around two-thirds of the group’s historical trading patterns.
Deutsche also pointed to upside from internal efficiency gains and more effective use of the company’s under-levered balance sheet, which currently stands at 1x net debt to EBITDA on depressed profits.
RS is a global distributor of industrial and electronic components, products and services. It supplies engineers, technicians and procurement professionals with a broad range of items used in maintenance, repair and operations (MRO), as well as in automation and control systems.
Its product offering includes electrical components, test and measurement equipment, tools, safety gear, and industrial consumables.