Broker snap: Investec cuts forecasts for Melrose on short-term caution

16th Nov 2012 11:18

Investec has pared its target price for industrial group Melrose after Friday's disappointment, but has reiterated its 'buy' rating for the stock, saying that the long-term outlook for the business is positive.Melrose announced that it had traded in line with expectations since the first half but slower trends for certainty businesses have been noticeable in certain business.The overall weekly rate of order intake in the second half of the year has been 8% lower than the first half, but Melrose said it is too early to tell how this will affect 2013.Investec said: "As we approach the end of the IMS season, the only clarity is that there is not any. Our assumption for FY13E of only modest revenue growth might in time prove overly negative, but with a book-to-bill ratio below one times year-to-date it feels prudent to lower top-line expectations."Nevertheless, the broker said that due to ongoing operational improvements, margins should be maintained."Longer term, we still expect Melrose to offer above average revenue growth with the prospect of margin upside (predominantly from [recent acquisition] Elster)."Investec has cut its 2013 and 2014 profit before tax estimates by 6.4% and 7.8%, respectively. As such, the target price for the shares has been cut from 270p to 260p.Shares were down 13.4% at 204.37p in mid-morning trade.BC