Metro AG Jumps as Morgan Stanley Predicts More Disposals

Metro AG surged the most in more than 18 months after Morgan Stanley recommended buying the stock for the first time in a decade, citing the prospect of further disposals as Germany’s biggest retailer reorganizes.

Metro jumped as much as 6.2 percent to 26.30 euros, the biggest intraday gain since Nov. 3, 2011, and was trading up 5.9 percent at 10:31 a.m. in Frankfurt. Volume was almost double the three-month daily average. The stock has risen 25 percent this year to a 13-month high.

Expanding the company’s Cash & Carry wholesale unit to better serve the hotel and restaurant industry, “stabilization” at the Media-Saturn electronics chain and potential asset sales create an “upside” for the stock, Edouard Aubin, a London-based analyst at Morgan Stanley, wrote in a report to clients today. He increased his recommendation on Dusseldorf-based Metro stock to overweight from equal-weight.

“Metro’s Cash & Carry division is increasingly focused on the professional customer,” Aubin wrote. “As for Media Markt Saturn, we see encouraging industry and company developments,” and “Metro could unlock significant value via a portfolio optimization process.”

Metro reported an unexpected first-quarter operating profit on May 2 as losses narrowed at the Real hypermarkets unit and Media-Saturn. The retailer forecasts a decline in earnings for the nine months from January through September as it invests in the Cash & Carry business and the economy remains challenging in southern and eastern Europe.

Chief Executive Officer Olaf Koch said when he took his post in early 2012 that he would focus on Cash & Carry and Media-Saturn while scaling back investments in Kaufhof department stores and Real grocery outlets. Since then, he has sold Real stores in eastern Europe to Groupe Auchan SA and the Makro U.K. wholesale unit to Booker Group Plc, and announced that Media-Saturn is leaving China.

The two most profitable sales would involve a partial or full withdrawal from more than 20 “non-focus countries,” which Morgan Stanley estimated in an asset value range of 2.5 billion euros ($3.23 billion) to 3.9 billion euros, and a full stock-market sale or disposal of C&C Russia, valued at 4.6 billion euros to 8.5 billion euros, Aubin said in his report.

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