The announced break-up of US industrial conglomerate Honeywell last week has prompted City pundits to consider whether something similar could create value for investors in Rolls-Royce Holdings PLC (LSE:RR.).
"We are not convinced," said Citi.
While deriving a valuation for a company based on a sum-of-parts calculation can "prove whatever result is required", the investment bank did concede that this process "becomes more valid when potential break-ups could occur".
Following Honeywell's announcement to split into three parts, Citi worked out a simple sum-of-parts for Rolls, using peer EV/EBIT valuations, to investigate whether splitting up Rolls-Royce could create value.
This produced a fair value for Rolls-Royce in the 550-650p range, with the shares ending last week at just over 602p - and so "we are not convinced this is a potentially value creative path," the American bank concluded.