By Abigail Townsend
Date: Thursday 28 Nov 2019
LONDON (ShareCast) - (Sharecast News) - RBC Capital Markets has nudged lower its rating on Melrose Industries following a recent strong run for the blue chip stock.
The bank downgraded its rating on the turnaround specialist to 'outperform' from 'top pick', but upped its target price to 265p from 245p.
It explained: "We continue to view Melrose shares as attractive into 2020, supported by a forecast 80bps of margin improvement, as end markets are more stable. Potential disposals could also be incremental to sentiment.
"With reduced implied upside following recent strong performance, we lower our rating to 'outperform'."
Melrose specialises in finding underperforming industrial businesses and turning them around before selling them on. Its largest acquisition, and most recent, was the industrial conglomerate GKN, which it acquired in 2018 through a particularly acrimonious £8bn hostile takeover.
RBC said: "[GKN] has perennially struggled to turn high market shares and top-line growth into margin improvements and cash generation through a combination of misaligned target setting and operational inefficiencies. We see these problems as similar to areas where we have seen Melrose management make major improvements in prior acquisitions."
RBC added it was possible Melrose could make around £5bn of disposals in the next 12-24 months.
As at 1430 GMT, shares in Melrose were trading more than 1% lower at 230.50p.