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(Sharecast News) - RBC Capital Markets downgraded Rotork on Wednesday to 'sector perform' from 'outperform' as it suggested that Swiss engineering firm ABB may be paying too little for the company.
Rotork announced last month that it had agreed to be bought by ABB in a 4.1bn deal.
"We believe ABB's offer for Rotork is taking advantage of the significant uplift in its multiple, while Rotork has (somewhat unfairly in our view) been derated," RBC said.
"The 503p per share offer values Rotork at circa 4.1bn, implied EV/EBITA of 21x 2026E / 19x 2027E. This is near the upper end of the absolute range for Rotork since 2010, but the sector premium at 16% is only marginally above Rotork's average premium of 13% since 2010. And relative to ABB, the offer implies a circa 15% discount versus the average premium of 10% since 2010."
RBC noted that Rotork has derated significantly against the bank's sector coverage since 2024, but said it already saw this as harsh for what it views as a high quality business with very high shares in niches such as oil & gas explosion proof electric actuators.
"Growth is stalled in 2026 reflecting primarily the oil & gas order backdrop in 2025 and also Middle East disruption, but we see the fundamentals as increasingly supportive with organic growth accelerating to 6% per annum from 2026-2030E, in the upper half of our coverage," it said. "And this is with Rotork's operating margins and return on invested capital both at circa 25% (specifically Rotork has the second-highest operating margins in our whole coverage)."
RBC said that given Rotork is "such a high quality and niche asset", it would expect other process automation companies to run a rule over it. "And with deal closure not expected until H1 2027 they have a bit of time," it said.
"However, ABB's EU peers, Siemens and Schneider Electric, have been more focused on software M&A versus hardware. And while for EU players the deal value equates to around 2% of market cap, at 5-8% of market cap for US players Emerson, Honeywell and Rockwell, the valuation level, while still in 'bolt-on' territory, could see a bit more scrutiny.
"The US players also have a starting net debt to EBITA that is generally a bit higher. Hence, while we do not rule out a counter-offer, we set our price target at 503p in line with the ABB bid and downgrade our rating to sector perform."
RBC lifted its price target on the stock to 503p from 400p.
At 1505 BST, the shares were flat at 486.40p.