Seeing the wood
for the trees
Making sense of the UK mid-cap industrial sector in the
current market turmoil
Disclosures and Disclaimer This report must be read with the disclosures and analyst
certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
The sell-off in UK industrial stocks has been both severe and indiscriminate and with falls
of c20 percent across the sector over the past six months share prices have plunged to
levels not seen since mid-2006. However, to date there have been only minor pockets of
end-market weakness and, in general, demand is holding firm. Given the lack of EPS
downgrades, many valuations are now close to levels not seen since the bottom of the
last cycle downturn in 2003.
We continue to believe the outlook for process industries will remain positive throughout
2008, supported by the continued commodity price strength and ongoing supply-side
capacity constraints. This presents interesting opportunities for both value and
defensive investors.
We reiterate our Overweight rating on Spectris, with a reduced target price of 900p from
1,010p. We move our rating on Invensys from Overweight to Overweight (V), while
reducing our target price from 390p to 320p.
We downgrade both Rotork (target price cut from 842p to 820p) and Spirax-Sarco from
Neutral to Underweight (target price cut from 1,050p to 900p).
We reiterate our Neutral rating on Weir Group (TP: 860p).

目录

Market outlook 6
Market outlook holds firm 6
Inflationary pressures 8
Earnings forecasts 11
Scenario analysis 11
Historical margins and EPS 12
Valuation 13
Share-price performance 13
P/E metrics 13
Invensys 16
Settling investors’ nerves 16
Operational review 16
Q3 results beat expectations 20
Earnings estimates 20
Valuation 22
Risks 24
Rotork 26
Risks rising in 2008 26
Operational review 28
Earnings estimates 29
Valuation 30
Risks 31
Spectris 33
Earnings estimates 36
Valuation 36
Risks 37
Spirax-Sarco 39
As good as it gets 39
Earnings estimates 41
Valuation 41
Risks 41
Weir Group 43
Share-price drivers 44
Acquisitions 45
Earnings forecasts 46
Valuation 47
MACC valuation 47
Risks 48
The macro backdrop 50
Capital goods cycle 50
Disclosure appendix 54
Disclaimer 58