Rotork PLC (LON:ROR) and Spectris PLC (LON:SXS) shares tumbled on Wednesday after BofA Merrill Lynch said the engineering pair’s premium shares prices were “unjustified” given near-term headwinds in their end markets.
Merrill downgraded the ratings on both to ‘underperform’ from ‘neutral’, with Rotork’s price target cut to 300p from 350p and for Spectris trimmed to 2,750p from 2,760p.
For actuator-maker Rotork, the analysts said they “see limited scope for material earnings momentum in FY20 set against a rich valuation”, with the impressive operational improvements reflected in the share price.
Its shares trade at around a 50% premium to the sector average ratio of enterprise valuation to underlying earnings, which “leaves scope for derating should earning momentum fail to materialise”.
Precision instrumentation and controls manufacturer Spectris, meanwhile, has enjoyed a strong outperformance recently and the Merrill analysts said CEO Andrew Heath’s strategic vision was “attractive” will take time, meaning the current valuation “arguable reflects a short-term transformation, while ignoring near-term macro risks”.
“We think material end-market growth recovery is unlikely in 202 with visibility remining limited and management remains understandably vague on the timing of disposals.”