Deutsche Bank adjusted its stance on RS Group Plc (RS1:LN), downgrading the stock from 'Buy' to 'Hold' and reducing the price target to £8.30 from the previous £9.50. The revision follows observations of the company's third-quarter performance, which showed mixed regional results and consistently subdued demand.
The bank's analysis highlighted a disparity in industry sectors, noting that while Fastenal (NASDAQ:FAST) reported a modest increase in daily sales, there was a significant decline in reseller performance and a contrasting strength in safety sales. This mix is seen as unfavorable for RS Group, which has less involvement in the stronger-performing safety sector.
Further concerns were raised by the performance of Rexel, which saw a decline in daily sales growth, particularly in Europe, and more specifically in the DACH region—a market that RS Group has recently increased its exposure to by approximately 40% through the acquisition of Distrelec.
Deutsche Bank had previously anticipated that RS Group could potentially exceed its fiscal year 2025 guidance for flat like-for-like sales. However, recent weak Purchasing Managers' Index (PMI) data and poor trading among peers suggest there is now an increased risk of underperformance.
For the first half of fiscal year 2025, Deutsche Bank forecasts like-for-like revenues to decline by 1%, with a projected growth of around 2% for calendar Q3, attributed solely to softer comparative figures from the previous year. Nevertheless, operating margins are expected to decrease by 160 basis points to 9.2%, reflecting the annualization of the Distrelec acquisition. Consequently, operating profit is predicted to fall by 13% to £134.8 million, profit before tax (PBT) by 16% to £119.5 million, and earnings per share (EPS) by 17% to 18.6 pence.
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