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On Tuesday, BofA Securities adjusted their stance on RS Group Plc (RS1:LN), elevating the stock from a Neutral to a Buy rating. Accompanying this upgrade, the firm also increased the price target from GBP5.50 to GBP7.30. The revision comes as BofA Securities anticipates a turnaround in the company’s performance in the latter half of the year, particularly in the Automation segment.
Analysts at BofA Securities have identified that RS Group’s current valuation, which has seen a 30% decrease since the start of the year, now stands at a 40% discount compared to the sector. They believe that this sizable discount has already accounted for the potential short-cycle weaknesses within the industry. Furthermore, they expect that the completion of the destocking cycle will pave the way for growth in the second half of the year.
The report from BofA Securities also points out that RS Group’s announced savings programs are likely to contribute to margin expansion. The analysts have adjusted their EBITA estimates upwards by 13-15%, factoring in the recovery in automation and the positive impact of cost savings on the company’s margins.
The new price objective of 730p represents an update in BofA Securities’ valuation methodology for RS Group. Previously applying a 20% discount to the sector, the analysts now set the target multiple at 11x EV/EBITA for the calendar year 2026, discounted back to the present. This adjustment aligns the valuation with the historical trading multiples of RS Group, which the analysts consider justified given the expected mid-term margin support following the end of the automation destock.
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