Exane downgrades Melrose, expresses disappointment over Elster sale

30th Jul 2015 14:56

(ShareCast News) - Exane BNP Paribas downgraded Melrose Industries to 'neutral' from 'outperform' with an unchanged price target of 285p following news of the company's disposal on Wednesday.Exane said Melrose's sales of its Elster business to Honeywell International for a cash consideration of £3.3bn was not the deal it had hoped for, as the bank had been expecting an acquisition."Melrose is in need of an acquisition and failure to find an appropriate asset within the next 12 months could lead to investors losing confidence in the ability for the 'Buy, Improve, Sell' strategy to continue," said Exane.The bank said it had been a buyer of the stock for two key reasons.Exane said all of the group's businesses were potentially for sale and although it did not see a major disposal coming, it considered that the break-up valuation suggested there was some upside, which was an attractive characteristic in a sector Exane sees as largely overbought.Secondly, it noted that management has a strong track record in respect of deal-making, so it had hoped to see a major acquisition in the second half of this year."With this large disposal not due to complete until Q1 next year, we see the chance of another major acquisition in the next nine months as low."At 1402BST, shares were own 1.6% at 273.10p.