Diploma and JTC among Berenberg's top industrial picks for 2025
By Benjamin Chiou
Date: Wednesday 22 Jan 2025
(Sharecast News) - Berenberg has highlighted is key picks in the UK-listed industrials sector for 2025, saying it continues to favour "quality compounders" and cyclical stocks with good exposure to a recovery in end-markets.
The outlook for the sector is still largely uncertain after a mixed 2024, Berenberg said, with elevated interest rates likely to hamper a global cyclical industrial recovery.
"Destocking continues to play out yet has eased further, PMIs remain negative, rates remain stubbornly high. Yet there are now diverging regional outlooks, and among the challenges there are signs of encouragement," the broker said.
The US is its preferred region, with Trump's pro-growth and protectional policies likely to benefit industrial companies domestically, while Europe and China remain challenging and the UK appears "stable, if anaemic".
"We think it too early to go fully cyclical, at least in H1 2025; however, we think the right approach is to have some cyclicality. Equally, we continue to favour quality compounders, or where value creation or special situation events offer asymmetric returns."
Berenberg named compounders - companies that can deliver sustainable, long-term growth with recurring revenues - like Diploma and JTC, "both of which have long-term track records of organic and inorganic outperformance and double-digit EPS growth".
Halma and Renew Holdings were also highlighted, which are both expected to have attractive long-term profit growth and decentralised compounder models which de-risk M&A.
As for more cyclical stocks, the broker prefers: Coats on the back of a new CEO and CFO, as well as recent significant operational improvements; Volex, with sentiment likely to rebound after a failed bid for TT Electronics; Clarkson which should benefit from a reinvigorated US energy policy and a decarbonisation trend; and Inchcape, due to a significant improvement in fundamentals over 2024.
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