Citi starts Melrose Industries at 'buy'

Citi initiated coverage of Melrose Industries with a 'buy' rating and 220p price target on Monday, saying it "uniquely" offers investors an opportunity to invest in a FTSE 100 company with "a consistent track record as an industrials turnaround specialist".

The bank said it sees 300 basis points group margin improvement in 2018-22 as the legacy of margin underperformance versus peers at both GKN Automotive and GKN Aerospace offers management "significant self-help upside" opportunity.

"We see margin improvement contributing 52% of the upside to our target price, with sales growth contributing only 16%," it said.

"Indeed as a turnaround specialist, Melrose’s business model is less reliant on 'the cycle' and top-line growth for delivering returns, making it particularly appealing for capital goods investors suffering from end of cycle fears/'endcyclitis'."

Citi added that in its coverage universe, alignment of management and shareholders' interests as well as transparency/scrutiny of targets is greatest at Melrose.