RBC Capital has upgraded its rating for FTSE 100-listed Melrose PLC (LON:MRO) to ‘Top Pick’ in a major review of the UK engineering sector, shuffling ratings for a number of other names, and initiating coverage on a fresh crop of companies.
In a note to clients, the Canadian bank’s analysts concluded: “We do not expect a major downturn, but even if there is one the recent sector sell-off has priced in a recession for many names in our coverage group.”
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They added: “Relative share price declines have been in many cases worse than past downturns. A number of names are pricing in organic sales declines worse than they have averaged across the last three sector sales downturn phases. On this basis we have a positive bias to our ratings.”
Aside from the upgrades to Top Picks from Outperform on Melrose, RBC also raised its stance on Rotork PLC (LON:ROR) to Outperform, but downgraded ratings for Weir PLC (LON:WEIR) to Outperform’ from Top Pick, and cut both Smiths Group PLC (LON:SMIN) and Spirax-Sarco Engineering PLC (LON:SPX) to Underperform.
Among the initiations, RBC made mid-cap Vesuvius PLC (LON:VSV) as its other Top Pick in the sector, while starting Bodycote PLC (LON:BOY), Coats PLC (LON:COAT), and RHI Magnesita NV (LON:RHI) all with Outperform ratings.
The bank initiated IMI PLC (LON:IMI. and Morgan Advanced Materials Group PLC (LON:MGAM) both with Underperform ratings.