Deutsche Bank cuts RS Group to hold, lowers price target Via Investing.com
Deutsche Bank adjusted its stance on RS Group Plc (RS1:LN), downgrading the stock from 'Buy' to 'Hold' and lowering the target price to £8.30 from £9.50 previously. The revision follows the company's third quarter performance review, which showed mixed regional results and consistently declining demand.
The bank's analysis highlighted the imbalance in the industry sectors, noting that although Fastenal (NASDAQ: ) reported a small increase in daily sales, there was a significant decrease in the performance of the broker and the unique strength in the sale of security. The mix appears to be unfavorable to RS Group, which has a relatively small stake in the active security sector.
Another concern was raised by the performance of Rexel, which saw a decrease in daily sales growth, especially in Europe, and especially in the DACH region—a market where RS Group recently increased its exposure by almost 40% with the acquisition of Distrelec.
Deutsche Bank previously expected that RS Group could exceed its fiscal year 2025 guidance for like-for-like sales. However, the latest weak Purchasing Managers' Index (PMI) data and weak trading among peers suggest that there is now an increased risk of underperformance.
In the first half of the fiscal year 2025, Deutsche Bank predicts that earnings will decrease by 1%, with an estimated growth of 2% for the calendar Q3, which is caused only by simple comparative figures of the previous year. However, operating margins are expected to decline by 160 basis points to 9.2%, reflecting the year-on-year acquisition of Distrelec. Therefore, operating profit is forecast 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 at 18.6 pence.
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