Is Spectris plc Better Value Than BAE Systems plc, Rolls-Royce Holding PLC And Royal Mail PLC After Millbrook Acquisition?

Does Spectris plc (LON: SXS) have a lower valuation than industry group peers BAE Systems plc (LON: BA), Rolls-Royce Holding PLC (LON: RR) and Royal Mail PLC (LON: RMG)?

Spectris plc
Spectris plc

Spectris plc (LON: SXS) (LSE: SXS.L) has announced the acquisition of the entire share capital of Millbrook Group Limited from Rutland Partners and Millbrook’s management shareholders. The total consideration for the purchase is £122 million and this will be met from Spectris’ existing cash and bank facilities.

Millbrook is a leading test, validation and engineering service provider. It operates mainly in the automotive market and was established in 1968. Following its sale by General Motors, it has focused on broadening its UK and international client list. This was aided by the acquisition of Test World in 2015. Millbrook’s revenue in the 2015 financial year was £48 million and its EBITDA was £5.4 million. Using forecasts for 2016, the consideration paid by Spectris equals a 12-13x EBITDA multiple.

The acquisition of Millbrook is Spectris’ largest ever purchase in the pure testing services sector. Its operations are closely linked to Spectris’ existing instrumentation business and it therefore believes that the deal is in-line with its strategy to provide customers with differentiated solutions that include a mix of software, hardware and services. Supported by Spectris’ wide geographical exposure, it believes that Millbrook has significant future growth opportunities.

Spectris has a P/E of 16.3. This is lower than industrial peer Rolls-Royce Holding PLC (LON: RR), which has a P/E of 29.6. However, Rolls-Royce is forecast to report EPS growth of 32% versus 7% for Spectris next year. Further, Spectris’ P/E is higher than those of industrial peers BAE Systems plc (LON: BA) and Royal Mail PLC (LON: RMG). BAE has a P/E of 13.8 and Royal Mail’s P/E is 12.3.

In my view, Spectris is an appealing company with a rich valuation relative to industrial group peers such as BAE, Royal Mail and Rolls-Royce. Therefore, it’s probably one for my ‘watchlist’ at this moment in time.

The author owns shares in BAE, but not in Royal Mail, Rolls-Royce or Spectris at the time of writing.

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