reports
- Toby Thorrington
Melrose Industries - Steady climb
Melrose Industries continues to deliver strong performance improvements and is on track to achieve its ambitious margin targets in 2025 (Engines 28% and Structures 9%). As a focused aerospace group, Melrose is also benefiting from the positive long-term drivers in the sector with record civil order backlog. This bodes well for continued earnings momentum and cash generation to drive shareholder value.
- Toby Thorrington
Melrose Industries - Continued outperformance
Melrose Industries’ shares have been re-rated over the past year, reflecting the company becoming a pure aerospace group and its improving operational performance. Attractions remain from the Risk and Revenue Sharing Partnerships (RRSPs) and associated cashflows along with the investments being made, such as in additive fabrication, to drive organic growth beyond the already positive aerospace market.
- Toby Thorrington
Melrose Industries - Increasing trajectory
The aerospace cycle is in strong recovery mode and Melrose Industries, assisted by the restructuring actions, is taking full advantage at both the top line and profit level. Internal momentum and market recovery provide confidence that management’s target returns set out for FY25 will be achieved, offering a further positive valuation catalyst.
- Toby Thorrington
Melrose Industries - GE partnership expansion
The announcement with GE further demonstrates the market-leading position of GKN Aerospace: technology and production capability to win original equipment (OE) work and repair and maintenance capability to win greater aftermarket work. Arguably the most important element for shareholders is the extension within the risk and revenue sharing partnerships (RRSPs), which demonstrates the importance of GKN Aerospace to GE’s overall engine offering while also providing greater exposure to the lucrativ...
- Toby Thorrington
Melrose Industries - Engine for growth
Melrose Industries’ investor event focused on the key GKN Aerospace engines business (Edison estimate 81% of FY23 profit). The industry-wide Risk and Revenue Sharing Partnerships (RRSPs) and its position as a design partner on both the next-generation engines under development are testament to the capabilities and technologies it possesses. Investment continues in order to maintain such leading positions as seen in additive fabrication and manufacturing, which includes a new £40m facility to sup...
- Toby Thorrington
Melrose Industries - Clarity on GTF helpful for investors
The announcement about the expected impact of the GTF engine programme, in which Melrose has a 4% share, removes an uncertainty from the shares. The expected cost of £200m equates to 14p a share. While material at 2% of our valuation, it should not detract from the underlying attractions of a focused group serving the rapidly recovering aerospace market.
- Toby Thorrington
Melrose Industries - Building returns
The improving aerospace market, original equipment and aftermarket, combined with internal restructuring, are driving strong profit recovery. This is offering the potential for significant returns to Melrose shareholders as seen with the additional share buy-back announced.
- Toby Thorrington
Melrose Industries - The stars are aligned
Following the demerger of Dowlais automotive, Melrose Industries is a focused aerospace group with a retuned strategy, still with shareholder value at its core, to develop its capabilities long term as a focused entity. The flexion point in the aftermarket partnerships, benefits from the operational actions and the accelerating recovery in the aerospace market provide strong positive dynamics for Melrose. Profit is set to expand significantly, well beyond the pre-acquisition levels, fuelling a ...
- Toby Thorrington
Melrose Industries - Positive trajectory
Melrose Industries’ results highlight that the Aerospace division is recovering ahead of previous management expectations. This should increase the attractions of the new Melrose group post demerger when it becomes a focused aerospace-orientated group. The other half of the demerger, automotive-orientated Dowlais, will offer recovery potential (10%+ margin targets) along with corporate activity expectations.
- Toby Thorrington
Melrose Industries - Releasing the potential
Melrose’s demerger of the automotive businesses and the listing of separate entities (NewCo and Melrose with Aerospace) will provide greater transparency of valuation. Using listed peer ratings for the two entities, we estimate a combined valuation per current Melrose share of c 200p. In addition, both companies will be able to accelerate their strategic pathways with greater potential access to capital markets. Melrose shares have declined 25% since the announcement of the demerger despite mana...
- Toby Thorrington
Melrose Industries - Two are better than one
Melrose has started the GKN businesses realisation process by announcing the demerger of the automotive businesses. This will permit automotive to prosper as a standalone listed entity, developing growth, including in electric vehicles, and corporate opportunities within the automotive arena. Melrose will continue its ‘buy, improve, sell’ strategy, including completing the restructuring of the aerospace business with the flexibility to undertake the next deal. This should release value while als...
- Toby Thorrington
Melrose Industries - Aerospace rising
Following the disposal of Ergotron, Melrose has now completed four transactions since 2005 with an average IRR of 28%. Focus now turns to the fifth deal, GKN Aerospace. Recovery in the aerospace market and management confidence to lift margin expectations from 12% to 14%+, along with greater disclosure on the engine contracts, suggest GKN is recovering strongly, albeit value realisation is likely a few years out. In the shorter term, the fully restructured GKN Powder Metallurgy and GKN Automotiv...
- Toby Thorrington
Melrose Industries - Accelerating sustainability
Melrose embraces sustainability through two avenues: internally through continuous development of its ESG practices and externally through the development of enhanced or completely new products that assist global decarbonisation. The former offers the potential to improve the internal operations of acquired businesses, an inherent part of Melrose’s ‘buy, improve, sell’ strategy, and the latter offers accelerated growth opportunities through the increasing push to reduce global emissions. Improve...
- Toby Thorrington
Melrose Industries - Short-term trading versus long-term value creatio...
Recent weakness in the share price (down 25% in Q122) reflects investors’ macro concerns. Melrose Industries’ value realisation occurs through disposing assets to vendors aware of the longer-term value. We expect disposals in 2022 (Ergotron and possibly GKN assets) to prove Melrose’s ‘buy, improve, sell’ model once more and support our valuation.
Thanks to a better fundamental star rating, MELROSE INDUSTRIES sees an...
The independent financial analyst theScreener just awarded an improved star rating to MELROSE INDUSTRIES (GB), active in the Industrial Machinery industry. As regards its fundamental valuation, the title receives an improved star rating and now shows 3 out of 4 possible stars. With regard to its market behaviour, it remains unchanged and can be qualified as risky. theScreener considers that these elements allow slightly upgrading its rating to Neutral. As of the analysis date December 24, 2021, ...
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