Coats Group PLC (LON:COA) has been upgraded to ‘buy’ from ‘hold’ while Spirax-Sarco Engineering PLC (LON:SPX) has been downgraded to ‘hold’ from ‘buy’ by Berenberg as the German bank reassessed its outlook on the UK’s industrial sector amid the coronavirus pandemic.
For sewing and thread supplier Coats, which had its target price cut to 55p from 80p, Berenberg said a 40% fall in the company’s shares this year “overemphasises the downside risk to earnings”, and that the company “may actually benefit” in the longer term from supply chain disruption caused by the outbreak.
Analysts added that the company could also see some “near-term margin support” from lower oil prices.
Meanwhile, Berenberg cut Spirax-Sarco’s target price to 8,900p from 9,680p, saying the shares had outperformed the sector by 23% in the year-to-date, although given “the wider selloff” in the market there was “greater upside elsewhere”.
However, the bank maintained that the company was “one of the most resilient business models in the sector, with 85% of revenue coming from the [operational expenditure] budgets of customers, which are highly diversified by geography and sector”.
“We continue to view Spirax as a core long-term holding and remain huge admirers of the company”, they added.
Looking to the wider sector, Berenberg said defensive names in the industry such as Spirax were “outperforming their more cyclical counterparts”, although shares across the sector had fallen by 28% and they believed fresh money will be “better allocated to these companies where business models remain attractive, balance sheets are solid and a path to recovery is clearly possible”.
Analysts also said they “cannot state with absolute confidence” that firms in the sector will not follow other industries in postponing or cancelling their dividends.
“The speed of change is unprecedented, risks are heightened and the outlook is uncertain. However, where there is risk there is also opportunity”, Berenberg concluded.
Shares in Coats were down 1.4% to 47.8p in late-morning trading on Thursday, while Spirax fell 5.7% to 8,000p.