Shore Capital sees major upside at Spectris if targets are hit

(Sharecast News) - Shore Capital has reiterated its 'buy' rating for Spectris after an encouraging update from the precision instruments group on Thursday, saying it sees the potential for a material ratings upgrade.

As of Wednesday's close, the stock was trading at a "near trough equity rating", despite significant scope for recovery and long-term growth, the broker said.

In a brief trading update, Spectris said its fourth-quarter performance was in line with expectations, but strong "operational execution" meant that adjusted operating profit for the year will be above the upper end of analysts' forecasts, which range from �183.3m to �201m.

"This follows a series of downgrades, most recently on 31 October, so we expect that investors will be encouraged by this update," Shore Capital said.

The stock was up more than 10% at a five-month high of 2,974p by 1156 GMT, having tumbled by more than a third over 2024.

Looking ahead, the broker said it sees "strong potential from recent acquisitions", which gives it increased confidence in the group's medium-term targets, such as an adjusted operating margin of 20%+ and organic growth of 6-7%.

"If these are achieved, we believe the shares would trade on a considerably higher rating, closer to peers, such as Halma, Oxford Instruments, Renishaw and Judges Scientific, which have FY25F EV/EBITDA multiples ranging from 12.8x to 23.0x. Many US-listed peers have even higher equity ratings."