UBS has reiterated its 'buy' rating for engineering giant GKN and raised its target price for the stock from 230p to 270p, saying that 'life should get better' from here on.

The broker admitted that GKN's fourth quarter will have been "difficult", as a result of: weak European auto production; the prospect of a restructuring in the Driveline division; and potential integration costs relating to Volvo.

"However, this is mostly backward looking and from here on life should get better," UBS said.

The broker reckons that in six to nine months' time, European auto production growth should be positive - global production should growth would by 4.0% in the fourth quarter - and other industrial markets should also return to growth. Meanwhile, reducing integration costs at Volvo would also help.

UBS also said that if the upper end of GKN's margin target is reached, it would trigger a 20% 2014 upgrade.

The broker said: "Multiples have moved up at auto and aerospace peers, and peer benchmarking points to upside at GKN.

"The pension subtracts 70p in our SOTP [sum-of-the-parts valuation] but asset values and discount rates are tentatively moving in the right direction which may help in 2013."

Shares were up 0.1% at 246.9p by mid-morning on Monday.

BC

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