Broker snap: UBS upgrades Melrose after recent disposals

11th Jul 2013 10:12

UBS has raised its recommendation for industrial investment conglomerate Melrose from 'neutral' to 'buy', saying that the outlook looks bright after a series of recent (and upcoming) disposals."The Melrose 'buy/improve/sell' cycle has been a profitable model for shareholders. With the disposals of Truth and Marelli, alongside the planned sales of Crosby and Acco, we are seeing the final stage in action and will soon be looking out to the next acquisition," said UBS analyst Robbie Capp.Capp admitted that the underlying business looks "significantly different", with the Elster division accounting for over 70% of underlying earnings. However, he reckons the outlook remains "optimistic" and continues to foresee scope for value creation given "big upside" seen at both Brush and Elster.On a valuation basis, Melrose trades broadly in line with other peers in the sector, but Capp thinks that its track record of creating value and attracting a good prices on disposals "both mean Melrose should trade at a healthy premium".The target price for the stock was raised from 275p to 300p.The shares were up 1.36% at 275.9p by 10:41.