Last close As at 05/08/2026
GBP4.65
▲ −5.50 (−1.17%)
Market capitalisation
GBP5,792m
Research: Industrials
The aerospace sector outlook remains positive, with lengthy order books at the primes (Airbus and Boeing) and total passenger flying hours in 2024 on schedule to exceed post-pandemic levels, supporting a strong aftermarket. The former will assist margin recovery for Melrose Industries’ original equipment (OE) operations, while increased flying hours are already generating strong growth and margin in the aftermarket business. Hence, our adjustment to estimates for external factors, such as FX movements, should not detract investors from focusing on the underlying positive dynamics of the business.
Melrose Industries |
Fundamentals remain positive |
Year-end update |
Aerospace and defence |
2 January 2025 |
Share price performance
Business description
Next events
Analyst
Melrose Industries is a research client of Edison Investment Research Limited |
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The aerospace sector outlook remains positive, with lengthy order books at the primes (Airbus and Boeing) and total passenger flying hours in 2024 on schedule to exceed post-pandemic levels, supporting a strong aftermarket. The former will assist margin recovery for Melrose Industries’ original equipment (OE) operations, while increased flying hours are already generating strong growth and margin in the aftermarket business. Hence, our adjustment to estimates for external factors, such as FX movements, should not detract investors from focusing on the underlying positive dynamics of the business.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
2,954 |
89 |
4.1 |
2.3 |
135.0 |
0.4 |
12/23 |
3,350 |
325 |
19.5 |
5.0 |
28.4 |
0.9 |
12/24e |
3,488 |
432 |
25.9 |
6.5 |
21.3 |
1.2 |
12/25e |
3,750 |
554 |
34.3 |
7.6 |
16.1 |
1.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Update to reflect FX and interest rates
Melrose Industries’ November update for the July to October period included underlying growth of 7% (H124: 12%), with the Engines division up 17%, driven by the aftermarket growing by 32%, and Structure up 1%, reflecting the new build (OE) business suffering from supply chain issues that affected delivery schedules from the primes. Management’s outlook for the full year was unchanged. The positive state of the aerospace markets is also unchanged and, arguably, the resolution of the industrial action at Boeing should assist production schedules.
At the year-end, we have reviewed our assumptions for FX impacts, given the strength of the US dollar in H224, and higher interest rates as anticipated rate cuts have not materialised, while Melrose’s funding is generally on flexible terms. We have also reassessed our dividend expectations in light of management’s capital structure pronouncement, which includes an increased focus on share buybacks (as per the additional £250m buyback announced with the interim results). For FY24, we have reduced our PBT forecast from £452m to £432m (-4.5%), EPS from 26.8p to 25.9p (-3.1%) and DPS from 6.7p to 6.5p (-3.1%). For FY25, we have revised our PBT estimate from £561m to £554m (-1.2%), EPS from 34.7p to 34.3p (-1.2%) and DPS from 9.3p to 7.6p (-18.0%).
Valuation: Positive upside
Our valuation of 654p per share remains unchanged. This reflects the fact that the key component to the valuation is the anticipated cash from the risk and revenue sharing partnerships, where the company guidance of £22bn cash generation remains unchanged. We will revisit and roll forward our discounted cash flow-based valuation with the 6 March results.
Forecast changes
Exhibit 1: Changes to forecasts
£m |
FY24e |
FY25e |
||||
Old |
New |
Change |
Old |
New |
Change |
|
Revenues |
3,677 |
3,488 |
(5.1%) |
3,849 |
3,750 |
(2.6%) |
Aerospace operating profit |
567 |
562 |
(0.8%) |
699 |
699 |
0.0% |
Aerospace operating margin |
15.4% |
16.1% |
0.7% |
18.2% |
18.6% |
0.5% |
Normalised operating profit |
537 |
532 |
(0.9%) |
669 |
669 |
0.0% |
Normalised operating profit margin |
14.6% |
15.3% |
0.7% |
17.4% |
17.8% |
0.5% |
Normalised PBT |
452 |
432 |
(4.5%) |
561 |
554 |
(1.2%) |
Normalised basic EPS (p) |
26.8 |
25.9 |
(3.1%) |
34.7 |
34.3 |
(1.2%) |
Dividend per share (p) |
6.7 |
6.5 |
(3.1%) |
9.3 |
7.6 |
(18.0%) |
Net debt/(cash) |
1,282 |
1,355 |
5.7% |
1,360 |
1,513 |
11.3% |
Source: Edison Investment Research
Exhibit 2: Financial summary
£m |
2022 |
2023 |
2024e |
2025e |
|
Year to 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
|
INCOME STATEMENT |
|||||
Revenue |
|
2,954 |
3,350 |
3,488 |
3,750 |
EBITDA |
|
292 |
532 |
694 |
829 |
Operating profit (before amort. and excepts.) |
147 |
390 |
532 |
669 |
|
Amortisation of acquired intangibles |
(260) |
(260) |
(260) |
(260) |
|
Exceptionals |
(157) |
(73) |
(50) |
(10) |
|
Reported operating profit |
(270) |
57 |
222 |
399 |
|
Net Interest |
(58) |
(65) |
(100) |
(115) |
|
Profit Before Tax (norm) |
|
89 |
325 |
432 |
554 |
Profit Before Tax (reported) |
|
(328) |
(8) |
122 |
284 |
Reported tax |
99 |
9 |
(24) |
(57) |
|
Profit After Tax (norm) |
69 |
268 |
341 |
438 |
|
Profit After Tax (reported) |
(229) |
1 |
97 |
227 |
|
Minority interests |
(5) |
0 |
0 |
0 |
|
Discontinued operations |
(80) |
(1,020) |
0 |
0 |
|
Net income (normalised) |
64 |
268 |
341 |
438 |
|
Net income (reported) |
(314) |
(1,019) |
97 |
227 |
|
Average Number of Shares Outstanding (m) |
1,406 |
1,349 |
1,315 |
1,276 |
|
EPS - normalised (p) |
|
4.1 |
19.5 |
25.9 |
34.3 |
EPS - normalised fully diluted (p) |
|
4.1 |
19.1 |
25.5 |
33.7 |
EPS - basic reported (p) |
|
(16.6) |
(75.5) |
7.4 |
17.8 |
Dividend (p) |
2.3 |
5.0 |
6.5 |
7.6 |
|
Revenue growth (%) |
8.5 |
16.6 |
11.8 |
9.7 |
|
Gross Margin (%) |
14.3 |
35.0 |
36.0 |
37.0 |
|
EBITDA Margin (%) |
9.9 |
15.9 |
19.7 |
22.1 |
|
Normalised Operating Margin (%) |
5.0 |
11.6 |
15.1 |
17.8 |
|
BALANCE SHEET |
|||||
Fixed Assets |
|
11,114 |
5,611 |
5,351 |
5,123 |
Intangible Assets |
6,882 |
3,397 |
3,137 |
2,877 |
|
Tangible Assets |
2,599 |
777 |
777 |
809 |
|
Investments & other |
1,633 |
1,437 |
1,437 |
1,437 |
|
Current Assets |
|
2,873 |
1,318 |
1,390 |
1,453 |
Stocks |
1,025 |
510 |
540 |
566 |
|
Debtors |
1,426 |
713 |
755 |
791 |
|
Cash & cash equivalents |
355 |
58 |
58 |
58 |
|
Other |
67 |
37 |
37 |
37 |
|
Current Liabilities |
|
2,978 |
1,533 |
1,630 |
1,671 |
Creditors |
2,347 |
1,179 |
1,248 |
1,309 |
|
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 |
1,446 |
1,013 |
Long term borrowings |
1,433 |
576 |
1,359 |
1,517 |
|
Other long-term liabilities |
2,408 |
1,253 |
87 |
(504) |
|
Net Assets |
|
7,168 |
3,567 |
3,664 |
3,892 |
Minority interests |
39 |
0 |
0 |
0 |
|
Shareholders' equity |
|
7,129 |
3,567 |
3,664 |
3,892 |
CASH FLOW |
|||||
Operating Cash Flow |
292 |
532 |
691 |
829 |
|
Working capital |
(148) |
(146) |
(100) |
(63) |
|
Exceptional & other |
(83) |
(159) |
(305) |
(135) |
|
Tax |
(8) |
17 |
(82) |
(105) |
|
Net operating cash flow |
|
53 |
244 |
204 |
527 |
Capex |
(31) |
(93) |
(162) |
(192) |
|
Acquisitions/disposals |
(7) |
0 |
0 |
(50) |
|
Net interest |
(82) |
(65) |
(83) |
(105) |
|
Equity financing |
0 |
(93) |
(650) |
(240) |
|
Dividends |
(77) |
(81) |
(72) |
(88) |
|
Net Cash Flow |
(144) |
(88) |
(763) |
(148) |
|
Opening net debt/(cash) |
|
343 |
487 |
572 |
1,355 |
Closing net debt/(cash) |
|
487 |
572 |
1,355 |
1,513 |
Source: Edison Investment Research
|
|
Research: Industrials
Theon International is a market leader in the defence optronics (night vision and thermal imaging) sector. Strong order intake, particularly in Q424, has enabled management to provide a positive outlook for FY25, including c 20% revenue growth. Adding in the mid-20% operating margins, we see the shares offering clear attractions on the current undemanding P/E rating of 11x in FY25e.