5 Specialist Manufacturing Growth Plays: Rolls-Royce Holdings plc, Spectris plc, Rotork p.l.c., Senior plc And Halma plc

Jack Tang — Mon, 01 Jun 2015 11:39:49 +0000

Rolls-Royce

Net profit for Rolls-Royce (LSE: RR) is set to fall by as much as 13% this year, following defence spending cuts and falling revenues for its marine business. The oil and gas sector, which usually accounts for more than half of the revenues for the company’s marine business, has slashed capital spending budgets following the decline in the oil price. On the upside, Rolls-Royce is making progress with cost cuts; and recently announced another reduction of 600 jobs, which would come from its struggling marine unit.

After 2015, booming demand for civil aerospace engines will likely lead the company back to growth. Earlier this year, the company secured a $9.2 billion order with Emirates to supply engines for 50 new A380 aircraft. Rolls-Royce could also benefit from further efficiency improvements, as its profit margin for commercial aircraft engines is lower than its peers average. The company trades at a forward P/E ratio of 17.0, with a forward dividend yield of 2.3%.

Spectris

Spectris (LSE: SXS), the developer of precision instrumentation and controls, suffered a setback in earnings growth last year, as demand weakened from the mining sector. In addition, the stronger US dollar helped to cause the 2% decline in revenues in 2014. Stripping out the effect of fluctuations of exchange rates, revenue would have increased by 2%.

Looking forward, earnings is set to recover in 2015, and the company’s bolt-on acquisitions should strengthen its product line-up. Spectris trades at a forward P/E ratio of 17.5.

Rotork

Rotork (LSE: ROR) is a manufacturer of flow control products. Weakness in the oil price will likely lead earnings lower this year, as the oil and gas sector accounted for 57% of the company’s revenues for its controls and gears segment in 2014. But, because of generally more stable demand from oil and gas midstream and downstream operations, which account for a large majority of the sector’s spending on the firm’s products, the impact to Rotork’s revenues will be smaller.

Long-term trends are attractive, with forecasts of rising water infrastructure spending and growing resource utilisation. Benefiting from scale and a strong competitive position, Rotork enjoyed an adjusted operating margin of 26.4% in 2014. Rotork’s shares seem expensive though, with a forward P/E ratio of 20.4.

Senior

Senior (LSE: SNR), the manufacturer of flexible components for aerospace, automotive and industrial applications, has benefited from its large exposure to large commercial aircraft, which represents 38% of group revenues. The company’s strong track record of successfully integrating bolt-on acquisitions have led to steadily growing revenues and improved operating margins. Senior is attractively valued, and trades at a forward P/E ratio of 15.5.

Halma

Safety and medical equipment supplier Halma (LSE: HLMA) has impressively raised its dividends over the past 35 consecutive years. The company’s products have a diverse range of uses, ranging from hazard detection in buildings, medical and environmental analysis. Demand for its products are generally non-cyclical, which allows the company to generate consistently stable cash flows. Prudent financial management has also helped, with the company having net debt of only £136 million. High barriers to entry have allowed the company to enjoy operating margins of around 20%.

Increasing demand for healthcare and stricter regulations on safety have raised the demand for the company’s products, and it appears that this trend is set to continue in the long term. Halma’s shares seem expensive, though, with a forward P/E ratio of 24.8 and its dividend yield is only 1.6%.

The post 5 Specialist Manufacturing Growth Plays: Rolls-Royce Holdings plc, Spectris plc, Rotork p.l.c., Senior plc And Halma plc appeared first on The Twelfth Magpie.

More reading