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Cookson climbs as analyst tips it as possible target for buyout group Melrose

The decision by buyout group Melrose to pull out of the bidding for engineer Charter International, leaving the way clear for US rival Colfax, has been welcomed by the market and analysts, but could it now turn its attentions elsewhere.

Melrose shares are up 12p at 302p and analysts at Investec issued a buy note on the business, saying:

Melrose has announced its decision not to proceed with an offer for Charter. In light of current market conditions and the company’s widely-stated aim of maintaining pricing discipline, we believe this is sensible. We re-initiate with a buy, despite the macro headwinds, as Melrose’s current business mix provides a robust earnings backdrop (especially post Dynacast), the 2012 estimated yield looks attractive, cash generation remains strong and the rating looks inexpensive.

Meanwhile Oliver Wynne-James at Panmure Gordon said it made no sense for Melrose to chase Charter, but valuations in the rest of the sector were now more appealing, and Cookson, up 4.2p at 445.1p, could be a target:

Melrose is walking away empty handed but still needs to feed the machine for its next five year share incentive scheme. It could impose a cooling-off period in order to re-build its share price and credibility, or it could hunt down some bargain valuations in the sector.

We highlight Cookson, Morgan Crucible and Bodycote. Each have varying degrees of improvement potential but are not in the same turnaround league as Charter. Cookson is our favoured target given the magnitude of the value being left on the table and its break up potential. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds