Broker snap: Investec lifts Melrose to 'buy'

8th Oct 2013 09:56

Investec has upgraded its rating for industrial investment firm Melrose from 'add' to 'buy', saying it still sees upside potential following a slight underperformance.14 months after the acquisition of metering firm Elster, the broker said that Melrose has showcased its progress with the business, or rather in the three now separate metering divisions. Analyst Chris Dyett said that Elster's three businesses are "strongly placed in global markets" and Melrose's actions have already lifted collective returns, "clearly with more to come".Dyett said: "The commercial focus has sharpened considerably, as lower-margin sales have been shed and costs reduced, with growth being sought. The wider message - Melrose's ability to enhance the value of acquisitions - is worth reiterating as it continues to sell ex-FKI businesses and prepares for further deals. Our estimates are unchanged but we lift our stance to 'buy'."Elsewhere, Melrose is in the process of selling heavy lifting unit Crosby for around $1bn and this will be followed by a return of part of the proceeds of 2013's three disposals. "With Brush, Bridon and Harris to follow and good progress being made at Elster, we expect that Melrose is thinking ahead to its next acquisition." Dyett said that the company has shown through previous acquisitions that it is "capable of generating value from a range of businesses, using the many and varied tools at its disposal, and that investors should be well disposed to its proven model and track record".Investec's target price was maintained at 318p. The stock was down 0.44% at 295.3p by Tuesday mid-morning, roughly in line with the wider FTSE 100.BC