RBC downgrades Dowlais as American Axle deal leaves little upside
Investing.com -- RBC Capital Markets downgraded Dowlais Group (LON:DWL) to “sector perform” from “outperform” as the company’s share price now trades nearly in line with the value implied in American Axle (NYSE:AXL) Manufacturing’s takeover offer, in a note dated Tuesday.
Analysts set a price target of 77p, just above Dowlais’ current share price of about 76p.
The downgrade follows a proposed combination announced in January in which Dowlais shareholders are set to receive 44.8p in cash, including a 2.8p final dividend, and 0.083 shares of American Axle for each Dowlais share.
On an updated basis, that deal values Dowlais at roughly 77.3p per share after accounting for the dividend, leaving little room for upside from its current level.
The implied offer splits ownership of the combined company between 49% for Dowlais investors and 51% for American Axle shareholders.
RBC analysts noted they continue to view the offer as undervaluing Dowlais, but said with the deal having been on the table for more than six months and both management teams still expecting a fourth-quarter completion, a closing is considered the most likely outcome.
The brokerage made only minor adjustments to its forecasts after Dowlais’ first-half results came in ahead of expectations, keeping the full-year outlook unchanged.
Dowlais, which was spun off from Melrose (LON:MRON), generates about 80% of its revenue from GKN (LON:GKN) Automotive and 20% from its Powder Metallurgy business.
The company’s market capitalization stands at about £1.07 billion, with shares outstanding at 1.39 billion.
Analysts also flagged that the key risk to the rating and target remains the progress of the American Axle transaction, while automotive demand, tariffs and the pace of the electric vehicle transition pose additional uncertainties.
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