Analysts at Liberum Capital believe that although valuations in the UK capital goods sector look elevated, industrial stocks are likely to “grind higher” helped by global demand and higher pricing.
In a note to clients, the analysts said they have revised their estimates across the sector, taking them to 6% above consensus, and have raised price targets for all the stocks they cover, although ratings are left unchanged.
They pointed out that the broker’s ‘Early Cycle Indicator’, adapted to capture the geographic exposure of UK engineers, is at a six-year high.
The analysts added that that reading is consistent with up to 8% organic sales growth from the second-half of 2017 for the five UK engineers under its coverage.
Prices recovering …
Furthermore, they said, pricing continues to strengthen with global producer price indexes showing +5%, from -3% a year ago and +1% three months ago.
Therefore, they concluded that cyclicals should continue to outperform defensives such as Halma PLC (LON:HLMA) on which they reiterated a ‘sell’ rating.
The analysts repeated ‘buy’ ratings on Spectris plc (LON:SXS), Bodycote PLC (LON:BOY), Morgan Advanced Materials PLC (LON: MGAM), and TT Electronics PLC (LON:TT.)
They reiterated a ‘hold’ stance on Spirax Sarco PLC (LON:SPX).