Citi starts Melrose spinoff Dowlais at 'sell'

The bank noted that consensus expects electrification to be neutral/positive for Dowlais, but said that its deep dive suggests battery electric vehicles (BEVs) could be a risk in the mid-term, with around 45-50% of sales seeing margin pressure.

"In this relatively technical and under-researched space, our due-diligence includes in-depth proprietary work on the EV powertrain sub-sector and feedback from those involved in EV design and/or purchasing at car-makers," it said.

"In a nutshell, many of the components Dowlais competes in are at risk of commoditisation and/or content-loss and/or over-capacity in the BEV world amid current or upcoming tech-disruptions."

Citi also said that relatively high net debt and near zero FY23 free cash flow add to concerns, should the cycle turn.

It pointed out that the shares are trading at a premium of around 20% to peers. The bank said it’s 5% to 10% below consensus 2024/25 and has opened a "negative catalyst watch" on the stock into results.

At 1010 BST, the shares were down 7% at 116.20p.