Jefferies upgrades two U.K. industrial stocks on ’more attractive valuations’
The upgrades reflect a change in sentiment around end markets impacted by U.S. political uncertainty, particularly in scientific research and automotive sectors.
Shares in Judges Scientific and AB Dynamics rose 1.8% and 0.5% in London, respectively.
Jefferies downgraded Judges Scientific to Hold in January due to concerns over short-term vulnerability linked to a volatile scientific research environment.
While the analysts continue to see risks—particularly in the U.S., which accounts for approximately 25% of sales and is believed to be 50% exposed to academia—as well as in China, they believe that order delays are likely to persist.
However, they now note that “shares have since derated markedly, and we now see uncertainty as better priced in.”
As a result, the downgrade was reversed, with the analysts upgrading the stock back to Buy, hiking the price target from 8,500 to 9,100p, which implies a 19% total shareholder return (TSR).
Despite ongoing risks in the U.S. and China, Jefferies points to Judges’ “diverse set of businesses” and continued leadership on margin and growth metrics within the scientific instrumentation space.
Jefferies also noted the company’s strong M&A track record and financial flexibility, stating that “a strong balance sheet provides scope for further accretive M&A.”
Despite modest forecast cuts due to foreign exchange pressures and a softer U.S. market, the broker anticipates a “resilient trading update next month” that could restore investor confidence.
Alongside Judges Scientific, AB Dynamics shares were also upgraded to Hold from Underperform.
The stock has declined significantly, with Jefferies pointing out that its valuation premium over quality peers has narrowed to 7% from a long-term average of 27%.
Although the investment case is still constrained by concerns about growth and margins, the analysts said they “see current multiples as fair, especially if we factor in possible upside from medium-term targets.”
While the company’s exposure to light vehicle production is limited, they believe the group’s trading should remain resilient given its strong position in auto R&D, which has historically held up during downturns.
They also observed that ABDP’s updated targets—doubling sales and tripling EBITA over the medium term—are not reflected in consensus forecasts, despite what Jefferies called the management team’s “usual conservatism.”
“The upcoming capital markets day (CMD) (26 June) will be a valuable opportunity to better understand growth drivers in simulation vs physical testing, as well as the levers to return margins to prior levels,” the analysts added.
“Valuation continues to prevent us from becoming more positive,” they continued, trimming the price target to 1,620p from 1,660p.
Is JDG truely undervalued?
With JDG making headlines, investors are asking: Is it truly valued fairly? InvestingPro's advanced AI algorithms have analyzed JDG alongside thousands of other stocks to uncover hidden gems with massive upside. And guess what? JDG wasn't at the top of the list.
