Last close As at 11/08/2026
GBP4.65
▲ −5.50 (−1.17%)
Market capitalisation
GBP5,792m
Research: Industrials
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.
Melrose Industries |
Continued outperformance |
Full year results |
Aerospace and defence |
8 March 2024 |
Share price performance
Business description
Next event
Analyst
Melrose Industries is a research client of Edison Investment Research Limited |
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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.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
2,954 |
89 |
4.1 |
2.3 |
150.7 |
0.4 |
12/23 |
3,350 |
331 |
19.5 |
5.0 |
31.7 |
0.8 |
12/24e |
3,677 |
456 |
26.7 |
6.7 |
23.1 |
1.1 |
12/25e |
4,028 |
575 |
34.3 |
9.3 |
18.0 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
2023 results: Ahead of expectations
Underlying PBT of £331m was 4.4% ahead of our forecast of £317m and underlying EPS, at 19.5p, was 5% ahead of our 18.6p forecast. Melrose reported organic growth of 13%, with 17% underlying, taking into account business being exited. Underlying operating profit increased 165% to £390m, with strong margin expansion from 5% to 11.6%. Engines reported organic revenue growth of 16%, with operating margins up from 15.7% to 26%, driven by strong aftermarket business. Structures reported organic growth of 18% (12% excluding exited business) driven by civil, which was up 28%, while defence remained flat. Structures’ operating margin increased from 1.3% to 5.1% due to restructuring, contract repricing and volume benefits. Net debt was £572m, excluding finance leases and after £93m of the current £500m share buyback programme, with net debt/EBITDA at 1.1x.
Forecast changes: Continued upgrades
Management has increased adjusted operating profit guidance for FY24 by c 6% at the underlying operating EBIT level. FY25 guidance, however, remains unchanged to reflect market risks, such as the current supply chain issues in the aerospace sector. Management’s new guidance has been factored into our updated forecasts, along with the Melrose long-term incentive plan (LTIP), which matures in May, diluting the EPS numbers. Our FY24 underlying EBIT has changed from £518m to £537m, underlying PBT has gone up from £441m to £456m and EPS is now 26.7p from 27.0p previously. Our FY25 operating numbers (EBIT) remain unchanged. However, our PBT has lowered from £589m to £575m and EPS from 37.2p to 34.3p, reflecting higher financing charges from the completed buyback and the LTIP additional shares in issue.
Valuation: Upgrade by 2%
We have updated our valuation using a combination of peer valuations and cash NPV for the RRSPs activities giving Melrose a value of 654p/share, up from 643p previously. This now also takes into account the Melrose LTIP, due to crystalise in May, but not the remainder of the share buyback, which will have a limited impact at the current share price.
2023 Results
2023 was Melrose’s first year reporting as a stand-alone, focused aerospace group, following the demerger of Dowlais automotive in April 2023. The group reported organic growth of 13%, with 17% underlying taking into account business being exited, to £3.35bn. Underlying operating profit increased 165% to £390m. This was driven by strong margin expansion from 5% to 11.6%. Underlying EPS increased from 4.1p to 19.5p (18.7p fully diluted). The dividend for the year was 5.0p. Net debt was £572m, excluding leases, but after £93m of the current £500m share buyback programme, with net debt/EBITDA at 1.1x. Note the loss on discontinued operations, ie the exit of Dowlais, was £1.0bn.
Exhibit 1: Profit and loss (£m)
Year to December |
2022 |
H1 |
H2 |
2023 |
Organic growth |
|
|
|
|
Engines |
|
19.0% |
13.0% |
16.0% |
Structures |
|
13.0% |
21.0% |
17.0% |
Group organic growth |
8.5% |
15.1% |
18.2% |
16.6% |
Engines |
1,035 |
608 |
585 |
1,193 |
Structures |
1,919 |
1,025 |
1,132 |
2,157 |
Aerospace |
2,954 |
1,633 |
1,717 |
3,350 |
Revenue |
2,954 |
1,633 |
1,717 |
3,350 |
Operating margin |
||||
Engines |
15.7% |
24.5% |
27.5% |
26.0% |
Structures |
1.3% |
2.5% |
7.4% |
5.1% |
Aerospace |
6.3% |
10.7% |
14.3% |
12.5% |
Group operating margin |
5.0% |
9.7% |
13.5% |
11.6% |
Underlying operating profit |
||||
Engines |
162 |
149 |
161 |
310 |
Structures |
24 |
26 |
84 |
110 |
Aerospace |
186 |
175 |
245 |
420 |
Central costs |
(39) |
(16) |
(14) |
(30) |
Group underlying operating profit |
147 |
159 |
231 |
390 |
Intangibles amortisation |
(260) |
(131) |
(129) |
(260) |
Exceptionals |
||||
Release of fair value items |
27 |
1 |
(1) |
0 |
Exchange adjustments |
(79) |
28 |
86 |
114 |
Reorganisation costs |
(90) |
(49) |
(100) |
(149) |
Other |
(15) |
(26) |
(12) |
(38) |
EBIT (reported) |
(270) |
(18) |
75 |
57 |
Financing charges |
(58) |
(44) |
(21) |
(59) |
Exceptional financing charges |
0 |
0 |
0 |
(6) |
PBT reported |
(328) |
(62) |
54 |
(8) |
PBT before exceptionals |
89 |
115 |
210 |
331 |
Source: Melrose
Engines
Engines reported organic revenue growth of 16%. Original equipment (OE) growth was 3%, due to ongoing supply chain challenges, but the more profitable aftermarket business grew by 34%, including 40% in civil engines. This was ahead of the market, which saw international air traffic increase 35% and domestic air traffic by 26%. Operating margin expanded strongly from 15.7% to 26.0%, benefitting from a mix of higher growth in the more profitable aftermarket, restructuring, operational gearing and pricing. Operationally, investment continues with the additional repair shop capacity in North America, along with investment in additive fabrication capacity (£50m invested).
Growth in 2024 is expected to be driven by the aftermarket business, with similar underlying trends as seen in 2023, in particular increased flying hours and additional/extended maintenance shop visits, due to the requirement to prolong aircraft life to meet current demand. The repair side of the business, which grew 24% in 2023, will also benefit from Chinese certification of the Malaysian facility and a new site in the US (due to open in 2024). Benefits from Melrose’s recent extended contract with GE Aerospace, along with the investment in additive fabrication, are expected to come through in 2025 and beyond. The key uncertainty is likely to come from the smaller OE side of the business, with the potential for continued supply chain disruptions. Note that management has not changed its views on the Pratt & Whitney GTF engine issues at total cash impact of £200m, including £70m in FY24.
Structures
Structures reported organic revenue growth of 18%, 12% excluding exited business. Civil OE was up 28% although defence was flat, reflecting, in part, the exited business. Operating margin increased from 1.3% to 5.1%. Improvements were driven by restructuring benefits (the number of facilities has reduced from 40 in 2018 to 22), repricing of exiting of unprofitable business and operational gearing from market recovery.
The outlook remains positive with the key civil market expected to grow by double digits in 2024 and 2025, as highlighted in Exhibit 2. Melrose’s exposure to the Boeing 737MAX is limited, suggesting any potential impact from the recent safety issues should be minimal. Perhaps more of a concern is the state of the supply chain and whether this impacts the ability of the primes to expand production rates. The division will also see sales impacted from low-margin business intentionally exited and the recent disposal of a non-core fuel systems business. On a positive note, the group’s new Chinese facility serving COMAC is scheduled to start production in Q224.
|
Exhibit 2: Civil airliner delivery expectations Airbus & Boeing |
|
|
Source: Boeing and Airbus |
Cash flow
Net debt increased from £487m to £572m. Positive operating cash generation was offset by a £146m increase in working capital to support growth, £125m of restructuring spend, £93m share repurchase and continued investment in the business, with capex at £102m or 0.9x depreciation. The balance sheet remains strong with net debt/EBITDA at 1.1x. Net debt is expected to increase further in 2024, ostensibly from the outstanding £407m of the share repurchase scheme, due to be completed in H224. However, further restructuring spend of £120m is expected, as well as the potential GTF outflow of c £70m and working capital investment to support the growth.
Exhibit 3: Cashflow (£m)
Year to December |
2022 |
H1 |
H2 |
2023 |
Operating profit (pre exc and g/w) |
147 |
159 |
231 |
390 |
Depreciation and amortisation |
145 |
71 |
71 |
142 |
EBITDA |
292 |
230 |
302 |
532 |
Net change in WC |
(148) |
(169) |
23 |
(146) |
Restructuring |
(60) |
(53) |
(72) |
(125) |
Pension etc |
(23) |
(2) |
(20) |
(22) |
Other adjusting items |
|
(19) |
7 |
(12) |
Operating cash flow |
61 |
(13) |
240 |
227 |
Returns and servicing of finance |
(82) |
(53) |
(12) |
(65) |
Total tax paid |
(8) |
(15) |
32 |
17 |
Net CAPEX |
(31) |
(40) |
(53) |
(93) |
Free cash flow |
(60) |
(121) |
207 |
86 |
Acquisitions and disposals |
(7) |
0 |
0 |
0 |
Equity dividends paid |
(77) |
0 |
(81) |
(81) |
Shares issued/(repurchased) |
0 |
0 |
(93) |
(93) |
Net cash flow |
(144) |
(121) |
33 |
(88) |
Exchange rate differences |
0 |
52 |
0 |
0 |
Other non-cash |
0 |
3 |
0 |
3 |
Net cash/(debt) b/fwd |
0 |
(487) |
0 |
(487) |
Movement in net debt |
(144) |
(66) |
0 |
(85) |
Net cash/(debt) pre finance leases |
(487) |
(553) |
0 |
(572) |
Source: Melrose
Strategy
The most significant event in the year was the change in strategy from Melrose’s historic acquisition-led ‘Buy, Improve, Sell’ model to being a focused aerospace group driven by organic growth. To achieve the required restructure, the Dowlais automotive business was demerged in April 2023. There has also been a change of management with Peter Dilnot (previously Melrose’s COO) becoming group CEO and Matthew Gregory (previously Aerospace’s divisional CFO) moving up to group CFO.
Melrose’s new philosophy is encapsulated in its ‘Design, Deliver, Improve’ philosophy. ‘Design’ reflects the technology within the business and its strategy to build partnerships through solving customer problems; thus becoming a solutions provider rather than a component supplier. ‘Deliver’ represents the operational drive to meet the highest expectation across all KPIs, such as quality, on-time delivery, financial performance, health and safety and environmental. ‘Improve’ retains the ‘old’ Melrose ethos for continued improvement, with a focus on operating margins, cash flow and shareholder returns.
Outlook and forecast changes
The company has provided specific guidance, including c 6% operating profit upgrade to FY24 (as detailed below along with the previous numbers where available). The growth in Engines is expected to be driven by the aftermarket business, which has a clear benefit to the division’s margins. The growth in Structures will be held back by business exits, with the margin progression driven by the restructuring but assisted by repricing. The H223 margin, while a seasonally stronger period, was 7.3%, adding confidence to guidance.
2025 targets have been left unchanged reflecting a degree of caution given the level of uncertainty that remains regarding how the supply chain issues could manifest themselves. However, management are clearly confident in the direction of travel as highlighted by the target for Engines margins of over 30% beyond 2025.
Exhibit 4: Management’s guidance summary
2024 |
2025 |
|||
Old |
New |
Unchanged |
||
Sales (£bn) |
Engines |
1.45–1.50 |
1.8 |
|
Structures |
2.15–2.25 |
2.2 |
||
Group |
3.5–3.7 |
3.6–3.75 |
4.0 |
|
EBIT pre central costs (£m) |
Engines |
410–420 |
500 |
|
Structures |
140–150 |
200 |
||
Group |
520–540 |
550–570 |
700 |
|
Operating margin (%) |
Engines |
28% |
28% |
|
Structures |
7% |
9% |
||
Group |
c 15% |
>15% |
17–18% |
|
EBITDA pre central costs (£m) |
Group |
680–700 |
710–730 |
870 |
Central costs (£m) |
Group |
30 |
30 |
|
Source: Melrose
Exhibit 5 highlights the changes made to Edison forecasts.
Exhibit 5: Changes to Edison forecasts
2024 |
2025 |
|||||
£m |
Old |
New |
Change |
Old |
New |
Change |
Revenues |
3,657 |
3,677 |
0.5% |
4,150 |
4,028 |
(2.9%) |
EBITDA |
688 |
699 |
1.5% |
848 |
839 |
(1.0%) |
EBITDA margin |
18.8% |
19.0% |
1.1% |
20.4% |
20.8% |
2.2% |
Aerospace operating profit |
543 |
567 |
4.4% |
696 |
699 |
0.5% |
Aerospace operating margin |
14.8% |
15.4% |
0.6% |
16.8% |
17.4% |
0.6% |
Normalised operating profit |
518 |
537 |
3.6% |
673 |
669 |
(0.5%) |
Normalised operating profit margin |
14.2% |
14.6% |
0.4% |
16.2% |
16.6% |
0.4% |
Normalised PBT |
441 |
456 |
3.4% |
579 |
575 |
(0.7%) |
Normalised basic EPS |
27.0 |
26.7 |
(1.1%) |
37.2 |
34.3 |
(7.8%) |
Dividend per share |
6.3 |
6.7 |
5.9% |
9.3 |
9.3 |
0.0% |
Net debt/(cash) |
1,139 |
1,126 |
(1.2%) |
1,051 |
1,023 |
(2.7%) |
Source: Edison Investment Research
Exhibit 6 shows the changes made to Edison’s FY24 forecasts since the demerger of Dowlais automotive, with FY24 EPS cumulative upgrade of 17%.
|
Exhibit 6: Changes to Edison 2024 PBT forecasts since demerger (p/share) |
|
|
Source: Edison Investment Research |
Valuation
Our valuation methodology remains unchanged. As per our initiation note, we split the valuation into two parts: the RRSPs (which are associated with the Engines division’s aftermarket) and the main manufacturing operations in Structures and the Engines division.
Our RRSPs valuation remains unchanged at £5.3bn. This is below management’s expectation of £5.7bn as we use a more conservative cost of capital. Note that the additional GE contracts will add to the medium-to-longer term cashflows, although the cash associated with the GTF issues will provide a shorter-term outflow. Exhibit 7 provides a peer valuation for Melrose’s non-RRSP activities using a quoted aerospace peer group.
Exhibit 7: Aerospace ex RRSPs valuation
|
Currency |
Share price |
Market cap |
EV/EBIT |
EV/EBITDA |
||||||||
Local |
£m |
2024 |
2025 |
2024 |
2025 |
||||||||
FACC |
EUR |
6.3 |
246 |
15.3 |
11.3 |
6.9 |
5.9 |
||||||
Magellan |
CAD |
8.02 |
267 |
8.3 |
5.8 |
6.1 |
4.7 |
||||||
MTU |
EUR |
213 |
9,815 |
13.8 |
12.1 |
10.0 |
9.0 |
||||||
Safran |
EUR |
146 |
52,280 |
16.0 |
13.2 |
12.1 |
10.4 |
||||||
Senior |
GBP |
176 |
740 |
14.6 |
11.2 |
7.8 |
6.7 |
||||||
Spirit |
USD |
21.0 |
1,760 |
11.7 |
6.7 |
6.3 |
4.8 |
||||||
Triumph |
USD |
9.1 |
556 |
9.7 |
8.7 |
8.0 |
7.2 |
||||||
Average |
12.9 |
9.9 |
8.2 |
7.0 |
|||||||||
Melrose ex RRSPs (EBIT/EBITDA - £m) |
360 |
450 |
485 |
580 |
|||||||||
Melrose ex RRSPs valuation (£m) |
4,640 |
4,432 |
3,967 |
4,033 |
|||||||||
Source: Edison Investment Research
Combining these two valuations provides an overall valuation for the group. We have allowed for maximum consideration under the Melrose LTIP (which matures in May 2024), hence the higher number of shares used than currently in issue, but not taken into account the remaining share buyback, which we estimate will have a limited impact at current levels.
Exhibit 8: Overall valuation
£m |
September 2023 |
December 2023 |
March 2024 |
Melrose ex RRSPs average of EV/EBIT and EV/EBITDA |
3,740 |
3,960 |
4,314 |
RRSPs DCF valuation |
5,300 |
5,300 |
5,300 |
Melrose net debt on demerger/year end |
(553) |
(687) |
(572) |
Melrose equity valuation |
8,487 |
8,573 |
9,042 |
Number of shares in issue (m) |
1,351 |
1,335 |
1,382 |
Value per Melrose share (p) |
628 |
642 |
654 |
Source: Edison Investment Research
Exhibit 9: Financial summary
£m |
2022 |
2023 |
2024e |
2025e |
|
Year to December |
IFRS |
IFRS |
IFRS |
IFRS |
|
INCOME STATEMENT |
|||||
Revenue |
|
2,954 |
3,350 |
3,677 |
4,028 |
EBITDA |
|
292 |
532 |
699 |
839 |
Operating profit (before amort. and excepts.) |
147 |
390 |
537 |
669 |
|
Amortisation of acquired intangibles |
(260) |
(260) |
(260) |
(260) |
|
Exceptionals |
(157) |
(73) |
(50) |
(10) |
|
Reported operating profit |
(270) |
57 |
227 |
399 |
|
Net Interest |
(58) |
(59) |
(80) |
(94) |
|
Exceptional financing costs |
0 |
(6) |
|||
Profit Before Tax (norm) |
|
89 |
331 |
456 |
575 |
Profit Before Tax (reported) |
|
(328) |
(8) |
146 |
305 |
Reported tax |
99 |
9 |
(29) |
(61) |
|
Profit After Tax (norm) |
69 |
268 |
360 |
454 |
|
Profit After Tax (reported) |
(229) |
1 |
117 |
244 |
|
Minority interests |
(5) |
0 |
0 |
0 |
|
Discontinued operations |
(80) |
(1,020) |
0 |
0 |
|
Net income (normalised) |
64 |
268 |
360 |
454 |
|
Net income (reported) |
(314) |
(1,019) |
117 |
244 |
|
Average Number of Shares Outstanding (m) |
1,406 |
1,349 |
1,350 |
1,325 |
|
EPS - normalised (p) |
|
4.1 |
19.5 |
26.7 |
34.3 |
EPS - normalised fully diluted (p) |
|
4.1 |
19.1 |
26.7 |
34.2 |
EPS - basic reported (p) |
|
(16.6) |
(75.5) |
8.7 |
18.4 |
Dividend (p) |
2.3 |
5.0 |
6.7 |
9.3 |
|
Revenue growth (%) |
8.5 |
16.6 |
15.6 |
11.4 |
|
Gross Margin (%) |
14.3 |
35.0 |
36.0 |
37.0 |
|
EBITDA Margin (%) |
9.9 |
15.9 |
19.0 |
20.8 |
|
Normalised Operating Margin |
5.0 |
11.6 |
14.6 |
16.6 |
|
BALANCE SHEET |
|||||
Fixed Assets |
|
11,114 |
5,611 |
5,400 |
5,191 |
Intangible Assets |
6,882 |
3,397 |
3,137 |
2,877 |
|
Tangible Assets |
2,599 |
777 |
826 |
877 |
|
Investments & other |
1,633 |
1,437 |
1,437 |
1,437 |
|
Current Assets |
|
2,873 |
1,318 |
1,414 |
1,489 |
Stocks |
1,025 |
510 |
550 |
581 |
|
Debtors |
1,426 |
713 |
769 |
813 |
|
Cash & cash equivalents |
355 |
58 |
58 |
58 |
|
Other |
67 |
37 |
37 |
37 |
|
Current Liabilities |
|
2,978 |
1,533 |
1,653 |
1,706 |
Creditors |
2,347 |
1,179 |
1,271 |
1,344 |
|
Tax and social security |
141 |
20 |
20 |
20 |
|
Short term borrowings |
63 |
54 |
54 |
54 |
|
Other |
427 |
280 |
308 |
288 |
|
Long Term Liabilities |
|
3,841 |
1,829 |
1,476 |
1,046 |
Long term borrowings |
1,433 |
576 |
1,130 |
1,027 |
|
Other long-term liabilities |
2,408 |
1,253 |
347 |
19 |
|
Net Assets |
|
7,168 |
3,567 |
3,684 |
3,928 |
Minority interests |
39 |
0 |
0 |
0 |
|
Shareholders' equity |
|
7,129 |
3,567 |
3,684 |
3,928 |
CASH FLOW |
|||||
Operating Cash Flow |
292 |
532 |
699 |
839 |
|
Working capital |
(148) |
(146) |
(98) |
(88) |
|
Exceptional & other |
(83) |
(159) |
(305) |
(135) |
|
Tax |
(8) |
17 |
(86) |
(109) |
|
Net operating cash flow |
|
53 |
244 |
209 |
508 |
Capex |
(31) |
(93) |
(211) |
(221) |
|
Acquisitions/disposals |
(7) |
0 |
0 |
0 |
|
Net interest |
(82) |
(65) |
(70) |
(84) |
|
Equity financing |
0 |
(93) |
(407) |
0 |
|
Dividends |
(77) |
(81) |
(75) |
(100) |
|
Other |
|||||
Net Cash Flow |
(144) |
(88) |
(554) |
103 |
|
Opening net debt/(cash) |
|
343 |
487 |
572 |
1,126 |
Closing net debt/(cash) |
|
487 |
572 |
1,126 |
1,023 |
Source: Melrose Industries, Edison Investment Research
|
|
Research: Financials
CoinShares International (CS) avslutade sitt senaste räkenskapsår med justerad EBITDA för Q423 på 25,7 miljoner pund, vilket ökade vinsten för FY23 till 56,9 miljoner pund (det näst bästa resultatet i företagets historia). Bolaget inför nu en utdelningspolicy med målsättningen att utbetala 20–40 % av totalresultatet justerat för valutakursdifferenser. Vi beräknar att detta, baserat på resultatet för räkenskapsåret 2023 och nuvarande aktiekurs, innebär en god direktavkastning på ca 3,4–6,8 %. CS vill expandera till USA genom att utnyttja sin option att förvärva Valkyrie Funds (som har en bitcoin-ETF i USA i sitt erbjudande) och genom sin nyligen lanserade Hedge Fund Solutions-verksamhet.