Barclays says Melrose Industries down but not out, stays at 'overweight'

Analysts at Barclays lowered their estimates for Melrose Industries but kept their recommendation for the shares, telling clients that a recovery in its automobile segment in 2021 might result in "upside surprises".

Following the turnaround specialist's trading update the day before, Barclays cut its forecast for 2020 earnings before interest, taxes and amortisation at the aerospace unit by 46% to £199m with a 26:74 split between the two halves of the year.

Furthermore, the anticipated return to profit in 2021 was expected to be underpinned by cost savings while year-on-year top-line growth was expected to remain "minimal".

For the company's automotive and powder metallurgical arm on the other hand, Barclays estimated that organic sales were set to rise 11% in 2021.

Cost out actions were expected to support the bottom line further, so that 2021 group EBITA was seen down by a more modest 11% to £592m.

Most important however, the broker's analysts said that their base GLVP growth forecast of 16% for 2021 meant that there was scope for upside surprises.

Barclays kept its recommendation on Melrose Industries's shares at 'overweight' with a target price of 155.0p.