Broker snap: Avingtrans's recovery warrants a rerating

8th Sep 2010 11:45

House broker FinnCap was touting precision engineer Avingtrans as a recovery play on Wednesday morning after the company released in-line full year results."The recession has had a severe impact on the group across its activities and the expected growth from aerospace [was] therefore delayed," FinnCap analyst David Buxton explained.The management took decisive action during the recession and the broker maintains that "new contract orders are evidence that diversification and new customer gains should propel sales in the current year."Most of the benefit of the new orders will start to feed through in fiscal 2011. "The group's exposure to the MRI [magnetic resonance imaging] scanner market is now improving as are trading conditions in civil aerospace, where we expect strong growth over the next few years, particularly from China," Buxton said."The Chinese aerospace factory is close to eliminating start up losses and we expect to see this profit over coming years," Buxton added. The broker reckons trading conditions have turned the corner and though this is beginning to be recognised in the form of the recent outperformance of the shares, the stock still trades close to historically low levels and "well below highs achieved before the recession.""We believe there is considerable scope over the next two years for the shares to appreciate and reflect a return to earnings growth we also see some scope to rerate the shares versus their industrial engineering peer group," the broker said.It rates the shares a "buy" and has a price target of 58p.