Broker snap: 'Sizeable' cash return likely at Melrose, says Investec

20th Jun 2013 10:54

Investec has maintained its 'buy' rating for industrial conglomerate Melrose after the disposal of motor manufacturing division Marelli Motori."Melrose's model of 'Buy, Improve and Sell' has been proven many times over and today's announcement repeats the process," said analyst Chris Dyett.The company announced that sale of Marelli Motori to Carlyle for €212m (£181m), well ahead of Investec's £150m estimate.The broker pointed out that completion is expected in August, which should be soon after the completion of the American window division Trust Hardware for £129m. Meanwhile, the sale of lifting fittings unit Crosby is also underway and reports have pinned a price tag of around £600m (ahead of Investec's £550m estimate). These transactions will take total disposal proceeds to over £900m.Dyett said: "Melrose's model (and record) also includes holding the appropriate level of capital for its current requirements, with fundraising for acquisitions and returns of cash out of disposal proceeds. Today's news adds to our confidence that shareholders can expect a cash return of c.50p, probably after the sale of Crosby and possibly by the end of 2013."While earnings-per-share dilution is likely after the disposals, it should be mitigated by a cash return and consolidation though this is "not a serious concern in view of Melrose's record of realising value from all assets".The broker has maintained its target price of 300p but admitted that this is now looking "increasingly conservative".However, despite the positive comments, the stock was still down 4.25% at 236.5p, with the wider London market under heavy selling pressure.