On Wednesday, HSBC analysts adjusted their stance on Spectris Plc (SXS:LN) (OTC: SEPJF) shares, downgrading the stock from Buy to Hold and setting a new price target of GBP30.50, reduced from the previous GBP37.00. The revision follows an in-depth review of the company's recent activities, including the Piezocryst acquisition, and an updated foreign exchange model.
The downgrade was influenced by a reassessment of the company’s financial projections. Adjusted earnings per share (EPS) estimates for the years 2024 to 2026 were lowered by approximately 1-2%, factoring in the impact of the acquisition and subsequent changes in currency valuation. Moreover, the firm's free cash flow (FCF) expectations were revised downwards due to anticipated high cash taxes in 2024, stemming from the sale of Red Lion.
HSBC analysts pointed out that the additional debt taken on by Spectris Plc to facilitate its recent acquisitions, coupled with higher interest costs, has led to their earnings projections falling 7-9% below the consensus. This discrepancy suggests potential downward pressure on future earnings.
The analysts also expressed concerns about the company's risk profile and narrative shift following these acquisitions. With the majority of the adjusted operating profit expected to materialize in the second half of 2024, there is an added short-term risk to earnings. The lack of clarity regarding the synergies from the deals further complicates the investment outlook.
The report concluded with a note on the potential for Spectris Plc to revise its 2024 expectations downward again, highlighting the current challenges in forecasting deal synergies. The new stock price target of 3,050 pence represents the updated valuation based on these factors.
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