GKN shares rally as HSBC initiates stock at 'buy'

6th Oct 2016 13:16

(ShareCast News) - HSBC initiated its rating on GKN at 'buy' with a target price of 395p on Thursday, saying it believes the automotive and aerospace engineer is a "well-managed, technology-led, high market share business".The bank said GKN has a clear strategy focused on sustainable growth. The delivery of shareholder value is bearing fruit with new technology and the possibility of further acquisitions providing potential for enhanced earnings, HSBC added."We believe that GKN has strong brand recognition in its chosen markets."For example, 90% of the world's automotive manufacturers partner with GKN and it supplies passenger cabin windows for all of Boeing and many of Airbus aircraft."HSBC sees the main drivers of future growth as: demographics - globalisation, rising population, urbanisation and ageing; environmental - fuel efficiency, electrification and automation; and technology - additive and digital manufacturing.The bank said GKN has world-leading technology, is an important supplier to major original equipment manufacturers in its core end markets and has exposure to structural growth drivers."This is compounded with the potential for the group to expand margins, improve earnings quality and thus enhance valuation multiples," HSBC said."We accept that the group's lower-than-sector margins and large pension liability are a cause for GKN's valuation discount, but even when adjusting for these, the stock still looks cheap."HSBC expects the third quarter trading update on 25 October to be in line with forecasts and to highlight a continuation of the positive trends seen in the first half of 2016.Shares in GKN rose 2.05% to 338p at 1042 BST.