Berenberg has downgraded Halma PLC (LON:HLMA), Diploma PLC (LON:DPLM), and The Vitec Group PLC (LON:VTC) to ‘hold’ from ‘buy’ as the broker turned neutral on the stocks on valuation grounds.
For Halma, which also had its target price cut to 1,560p from 1,570p, Berenberg said while it expected 2019 to be “another record year” for the FTSE 100-hazard protection product maker, recent market movements had left the share trading at a “significantly higher premium than its long run average”.
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“While we see upside risk to earnings, we think shares are more likely to grow into its multiple rather than see any expansion in the near term. Our long-term thesis remains unchanged, but we advise investors to await a better entry point and believe there is better value found elsewhere at present.”
It was a similar story for FTSE 250-technical products firm Diploma, which analysts reduced to 1,350p from 1,435p, saying now that global growth was predicted to “moderate rather than plunge” and this left a valuation discrepancy between “high-quality defensives and the more cyclical names” that was “too wide”.
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“Diploma trades at a c25% premium to its long-term average and c15% above its long-term premium to peers. As such, we downgrade Diploma to Hold in favour of greater upside elsewhere.”
For Vitec, Berenberg trimmed its target to 1,225p from 1,500p, in addition to the downgrade on the grounds that “near-term catalysts” for growth had been reduced partially by the camera maker’s balance sheet which restricted “larger, more accretive M&A”.
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Analysts also said the shares were currently trading at a premium of around 10%, although they added that the longer-term opportunity for the firm was “highly attractive”.
“Vitec’s repositioning strategy – improved product innovation, distribution channels and customer positioning – has far better positioned it in the high growth independent content creation market where we expect the company’s size and scope to be a major competitive advantage over peers.”
In late-morning trading Tuesday, Halma shares were up 0.1% at 1,402p, Diploma shares were up 0.8% at 1,276p, and Vitec shares were down 0.8% at 1,190p.