Halma PLC (LON:HLMA) and Spirax-Sarco Engineering PLC (LON:SPX) have been downgraded to ‘equal-weight’ by Morgan Stanley who prefers the prospects of different players in the capital goods sector.
“While acknowledging Halma and Spirax remain two of UK engineering's top franchises, we view current valuations as unpalatable with absolute and relative multiples near 14-year highs, and downgrade both to equal-weight,” Morgan Stanley analysts said in a note to clients.
READ: Numis downgrades Spirax-Sarco following strong share price run, valuation concerns
The investment bank said it sees the valuation of both companies as extreme and that it prefers ‘overweight’ rated Weir, Spectris and IMI in a sector, which is downgraded to ‘cautious’ in 2017 on the risks of an approaching PMI peak.
Morgan Stanley cut Halma and Spirax’s price target by 14% to 1,360p and by 15% to 6,260p, respectively, primarily because its applied sector multiple has come down from 13.6x to 12.5x as the Capital Goods sector has derated since Halama’s last earnings update.
Shares in Halma were 5.70% down at 1,273p in late morning trade, while Spirax was 5.0% down at 6,003.25p.