Broker tips: Diversified industrials, Victrex

(Sharecast News) - Jefferies upgraded Halma, XP Power and Renishaw on Friday as it took a look at diversified industrials.

Halma was lifted to 'hold' from 'underperform' and the target price increased to 3,650p from 3,050p. The bank said the shares have de-rated significantly since April, and at the current level the stock trades on a 49% premium to the wider UK Industrials sector, the lowest level since March 2018.

"The market has reacted negatively to the FY27F Avo Photonics revenue guidance, and this business now appears to be valued, rightly so, in our view, at a lower multiple than the rest of Halma," Jefferies said. "Now, with the rest of the portfolio businesses performing well, EBITA margins at the top end of guidance range and Halma using super-normal profits from Avo to be more aggressive on M&A, we see little reason to persist with our underperform recommendation."

The bank also upgraded XP Power, to 'buy' from hold' and lifted the price target to 2,330p from 1,870p. It said XP is the most exposed of its coverage companies to the semiconductor market, with 40% of 1H26 revenue coming from the semiconductor end market, mostly from customers Applied Materials and LAM Research.

"We expect XP Power to see significant earnings per share growth over the next three years as organic revenue growth and margins establish themselves back towards the group's medium-term objectives," it said. "After a troubled period extending over a number of years, XPP appears to be back into growth mode, there is upside risk to estimates and a Balance Sheet which is no longer problematic."

Jefferies upgraded its stance on Renishaw to 'buy' from 'hold' and hiked the price target to 6,090p from 3,450p.

It said semiconductor demand is driving mid-teens organic revenue growth, with most of it flowing through the group's highest-margin Position Measurement division.

"There is also strong demand growth from Aerospace and Defence end markets, which we believe can sustain attractive organic revenue growth into FY27F," it said. "With recent cost-cutting initiatives amplifying the operational leverage in the group, and 2H26F EBITA margins already at 21%, we see mid-20s EBITA margins as feasible for the first time since FY22."

Finally, Jefferies upped its price target on Oxford Instruments to 3,000p from 2,590p, keeping, keeping a 'hold' rating. It said market expectations on the group's Indium Phosphide business are high, and order intake has been impressive but its contribution to group revenue and EBITA is still relatively low, and the scale-up of manufacturing is not without challenges.

"The semiconductor cycle is also benefiting the core Imaging & Analysis division, but outside of this end market, there is very little growth, in our view, and, at a group level, EBITA margin progression has stumbled," Jefferies said.

Citi hiked its price target on Victrex on Friday to 1,000p from 700p as it updated its model following the company's FY26 pre-close trading update.

On Wednesday, Victrex lifted its fullyear profit guidance as it said strong trading momentum continued into the final quarter. The company said it now expects underlying pre-tax profits of £45m to £47m for FY26, up from previous guidance for £42m to £44m.

Citi said growth was broad-based across most end-markets, led by Aerospace supported by higher aircraft build rates, alongside continued strength in Electronics driven by semiconductor demand and VARs.

"Regionally, APAC was a bright spot, with especially strong performance in China," it noted, adding that Automotive and Medical remained comparatively modest.

Reflecting the stronger-than-expected trading performance and improved earnings outlook, Citi increased its FY26 underlying pre-tax profit estimate to £46m from £44m, in line with the midpoint of upgraded guidance. The bank also lifted its FY27 forecast, to £54m from £50m, assuming continued volume growth across key end markets and ongoing cost-saving initiatives.

"While the macroeconomic backdrop remains uncertain, the upgraded guidance provides further evidence that trading conditions are improving across the portfolio," said Citi, which maintained its 'neutral' rating.