Numis upgrades Melrose to 'add'; says deal is key

24th Jul 2015 13:19

(ShareCast News) - Numis upgraded Melrose Industries to 'add' from 'hold', keeping the target price at 290p saying upside should come from the next meaningful acquisition."We estimate that a major purchase could add over 10% to earnings, leaving the shares trading at a discount to peers, with potential for sum-of-the-parts upgrades as markets factor in the margin improvements which Melrose management have historically delivered," said Numis in a research report e-mailed to clients.The broker added that while the timing of any deal is uncertain, the prospects have increased and the current discount to Numis' SOTP valuation provides a sensible entry point.Numis said given that it is now three years since the Elster deal and management first started commenting on the 'next purchase' eighteen months ago, management appetite is no doubt as acute as investors'.It added that the company's interim results are unlikely to excite. Progress at Elster Gas - the largest business - is expected to offset weakness in Brush operating in a soft power generation market, said Numis.It also noted that management had pointed to currency headwinds in March."The recent strength in Sterling will, we estimate, generate a further £3-4m headwind to 2015 numbers for which we have adjusted," according to these analysts.At 12:27, Melrose shares were up 0.8% at 262.50p.