(Sharecast News) - Numis has cut its estimates for industrial and electrical products maker RS Group but kept a 'buy' rating, saying that the company is well placed to benefit from gradually improving macro conditions.
The broker forecasts a "modest market recovery" for RS Group in the current financial year ending 31 March 2025, but said that ongoing higher operating and finance costs has prompted it to slash earnings per share estimates by 8%.
Meanwhile, Numis reckons that RS will have seen a 50% "drop-through" of lost revenues to profit through this cycle due to cost inflation - compared with 25% in prior downturns - which is also "suggestive of a lagged response to managing a changing market dynamic".
However, the broker added: "When recovery materialises, we hope operational gearing can still work in reverse, particularly as ongoing cost pressure should be partly offset by identified cost savings."
Looking ahead, Numis said that, with S&P's closely following manufacturing PMIs now positive in the UK and US, "encouragingly lead indicators are now [...] steadily improving".
"The cycle appears to be turning and, as it does, we would expect RS to benefit. We retain a 'buy' rating on a reduced 1,050p target price (from 1,075p)."
The stock was up 1.5% at 721.5p by 1503 BST.
RS Group (RS1)