Broker tips: TI Fluid Systems, RWS Holdings, Melrose Industries

Jefferies downgraded its stance on TI Fluid Systems on Tuesday to 'hold' from 'buy' and cut its target price on the stock from 215.0p following a takeover proposal from ABC Technologies.

"Given the likelihood of progression of ABC Technologies' proposed 200.0p per share offer for TIFS we move our price target to the offer price of 200.0p, and we downgrade our rating," it said.

TI Fluid said earlier this month that it would be "minded to recommend" an improved takeover proposal from Canada's ABC Technologies at 200p a share, should a firm offer be made. It has already rejected offers of 165.0p a share, 188.0p a share and 195.0p a share.

The latest proposal, which was made on 10 October, represents a premium of about 53.4% to the closing share price on 21 August, which was the last business day prior to ABC Technologies submitting its first proposal to the group.

Analysts at Berenberg lowered their target price on RWS Holdings from 380.0p to 330.0p on Tuesday following the group's FY24 trading update.

Berenberg said RWS' update confirmed the group had returned to growth in H224, delivering 2% organic constant currency revenue growth in the period. Adjusted pre-tax profits were also expected to be within the range of current consensus expectations for FY24, before FX headwinds.

The German bank, which reiterated its 'buy' rating on the stock, sees this as proof that recent pressures on trading have been either cyclical or market-related and were now easing, with management expecting FY25 to be a further year of organic constant currency growth.

However, unfavourable FX movements were expected to have a significant impact on profits in FY25, leading to a roughly 23% downgrades to Berenberg's earnings forecasts for RWS.

"Despite this, we note that on our new forecasts RWS trades on just 8.2x FY25 P/E and 4.2x EV/EBITDA, which we think is attractive for a business that now appears to have seen a reversal of fortunes notwithstanding FX, and where today's performance should help assuage investor concerns about AI's impact on the industry," said Berenberg.

The "explainer" released by Melrose Industries on Monday about its 19 Risk and Revenue Sharing Partnerships was a "positive development," Citi said on Tuesday.

Melrose shares surged on Monday afternoon after it released a 40-page booklet explaining the accounting around its RRSPs and said the portfolio was "well positioned" to generate significant returns for investors in the coming decades.

"In our view, the recent relative share price weakness has largely been due to a lack of market understanding of the relationship between profit and cash. This has sometimes led to doubts about the strength of mid-term cash generation," Citi said.

"The RRSP explainer provides detail on how the accounting works by engine programme and why IFRS 15 requirements have resulted in profit leading cash," it said.

Overall, Citi said it sees this as a positive step towards the market understanding the potential strength of the company's midterm cash generation.