Rotork Plc

Rotork Plc (LON: ROR) is a UK based company that is into the flow control & actuator manufacturing. The company provides its services worldwide with the help of local offices and agents which help in easy availability of Rotork’s products and supported by maintenance, repair and upgrade services.

The Company will release trading update on 30 April 2021.

Investment Highlights - Rotork Plc – Hold at GBX 357.20

• Despite the impact of the covid-19, the Company’s production facilities are operating at normal pace, with solid order book and strong balance sheet.
• In the last six months, the Company delivered a substantial return of ~26.67% and delivered higher returns compared to the benchmark Index (FTSE-250 Index).
• As per valuation metrics, EV/Sales multiple of Rotork Plc is currently lower as compared to the corresponding multiple of the Machinery, Tools, Heavy Vehicles, Trains and Ships industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, 14-day RSI is supporting an upside move (around 46 level), which means the stock price could increase in the short term.

Key Risks

• Due to imposed travel restrictions and lockdown to contain the spread of the virus, the market outlook becomes more uncertain.
• The Company works in a disruptive market, failure in adopting new technologies and innovations could impact the business of the Company.

Financial Highlights – FY2020 (31 December 2020) (released on 2 March 2021)

(Source: Annual Report, Company Website) 

• For the financial year 2020, driven by the impact of the covid-19, the order intake declined by 14.7% and revenue declined by 9.7%.
• The profitability for the period declined, reflecting lower revenue. The profit before tax declined by 1.6% to £122 million in FY2020.
• The Company managed to increase dividend for full-year by 1.6% to 6.3 pence in FY2020 (FY2019: 6.2 pence).

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in the financial year 2020, with lower revenue and profitability. Despite the lower performance, the adjusted operating margins was ahead of forecasts. ROR’s Growth Acceleration Programme is progressing well and deliver planned benefits. The end markets is improving, while uncertainty related to the covid-19 pandemic remains. The Company continues to make investment in aftermarket activities, new product development, innovation, targeted geographies and IT systems. Rotork is focused on strengthening business and is well placed to benefit from demand recovery. The stock made a 52-week low and high of GBX 205.20 and GBX 381.40, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for Rotork Plc at the current price of GBX 357.20 (as on 30 March 2021 at 9:55 AM GMT) and will recommend fresh buying at the right time. 

*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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