Broker tips: Rotork, McBride

18th Sep 2015 17:14

(ShareCast News) - Rotork was in the red again on Friday, having fallen sharply the day before on the back of a profit warning, as analysts at Nomura and RBC Capital Markets downgraded their ratings on the stock.Nomura cut Rotork to 'reduce' from 'neutral' and slashed the price target to 180p from 215p, saying the profit warning has resulted in a 5% cut to the bank's full year 2015 revenue estimates and an 11% cut to its forecasts for earnings before interest, tax and amortisation, and earnings per share.It said management commentary around delays to deliveries, slower decision-making and lack of conversion from quoting activity to orders makes it nervous for the development of revenue in 2016/17."The business model remains strong and returns remain above-sector average, but the revenue profile over the coming couple of years looks bleak indeed."Meanwhile, RBC cut its stance on the stock to 'underperform' from 'sector perform' and dropped the target price to 160p from 210p, saying the post-warning multiple doesn't reflect risks."The 11% share price fall following yesterday's profit warning does not sufficiently reflect our 15/20% cut to 2015/2016 forecasts," the Canadian bank said.It said that with end markets volatile enough for management to revise down its second-half estimates by 20% six weeks after seeming to reassure, it does not see the implied re-rating as justified. Investec said McBride has been a "leading private label supplier in revenue terms, but its history has been besieged by disappointments at the profit level as it has failed to turn its size into any real competitive advantage".However, the broker issued the company a 'buy' rating saying the new management team could turn things around. "If ambitious targets are delivered this could create meaningful value for shareholders.""The previous management initiated actions to take this back to 5%, but the new team (which came together in February 2015) are more ambitious (but also realistic) in aiming to take margins to 7.5%, which they feel is the level required to ensure a sustainable future."