Credit Suisse downgrades Morrisons, ups target price

Morrisons agreed a £6.3bn takeover deal with a group of investors led by Fortress Investment Group at the weekend, just weeks after it turned down a £5.5bn approach from fellow US private equity firm Clayton, Dubilier & Rice.

But on Monday it emerged that fellow US investment firm Apollo Global was also mulling an approach, fuelling expectations of a potential bidding war.

Credit Suisse said: "We raise our target price to 254p to reflect Fortresses’ 252p-per-share bid-plus 2p per share dividend proposal.

"Given limited potential upside from current levels, and uncertainties related to finalisation of the deal, we downgrade the stock to ‘neutral’."

Credit Suisse previously had an ‘outperform’ rating on the stock, and a target price of 216.0p.

The Swiss bank continued: "Morrisons could benefit from privatisation, which could allow focus on long-term transformation rather than mid-term results. Assuming optimistically 2% terminal growth, we arrive at a blue sky valuation of 290p."

Noting that the downside should be protected by the recommended price of 254p, it said: "There could be multiple bidders - CD&R, Fortress and Apollo - which could increase the price if shareholders do not vote in favour of the Fortress transaction.

"The key risk to our target price is absence of any transaction, which, in our view, is unlikely."

As at 1230 BST, shares in Morrisons were largely flat at 266.9p. The stock has risen 51% in the last month.