Last close As at 05/08/2026
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Market capitalisation
GBP5,792m
Research: Industrials
Melrose Industries’ impressive H1 performance demonstrates the strength of the business, assisted by aftermarket exposure, given the current supply chain issues in the aerospace sector. A new buyback programme and investment in future organic growth, along with positive market dynamics, offer further positive earnings drivers through the medium term.
Melrose Industries |
Positive progress continues |
Interim results |
Aerospace and defence |
1 August 2024 |
Share price performance
Business description
Next events
Analyst
Melrose Industries is a research client of Edison Investment Research Limited |
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Melrose Industries’ impressive H1 performance demonstrates the strength of the business, assisted by aftermarket exposure, given the current supply chain issues in the aerospace sector. A new buyback programme and investment in future organic growth, along with positive market dynamics, offer further positive earnings drivers through the medium term.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
2,954 |
89 |
4.1 |
2.3 |
151 |
0.4 |
12/23 |
3,350 |
331 |
19.5 |
5.0 |
31.7 |
0.8 |
12/24e |
3,677 |
452 |
26.8 |
6.7 |
23.1 |
1.1 |
12/25e |
3,849 |
561 |
34.7 |
9.3 |
17.8 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Results overview
Melrose’s revenue increased by 9% (12% excluding business exited) to £1.7bn and, at the aerospace operating level, the operating margin increased 420bp to 14.9%. Adjusted group operating profit for H1 was £247m (+55%), adjusted PBT was £204m (+52%) and adjusted EPS was 11.9p (+59%), benefiting from the current share buyback programme. DPS was 2.0p (+33%) and net debt was £976m, with a net debt/EBITDA of 1.7x after £336m of the £500m buyback programme completed.
Divisional performance
Engines’ revenue growth of 21% was driven by aftermarket growth of 31%, with the engine repair and defence operations being particularly strong. Melrose’s adjusted operating margin increased from 24.5% to 29.4%, which was assisted by mix and previous restructuring. Structures’ underlying sales growth was 6%, with the operating margin up from 2.5% to 4.7%. This benefited from restructuring, exiting/repricing certain business and three small disposals. Both divisions achieved strong performance despite the current difficulties in the aerospace supply chain, which is affecting civil production rates (eg Airbus cut 2024 delivery expectations from 800 to 770 aircraft).
Guidance update and additional share repurchase
Management’s guidance for FY24 is unchanged. Its targets for FY25 remain the same at the EBIT level (£700m, before c £30m PLC costs), with higher margins (additional aftermarket mix and restructuring benefit) due to offset the reduction in sales expectations (£3.8bn, from £4.0bn). As part of the capital allocation policy, an additional £250m share buyback programme has been announced, which is running to March 2026. This is expected to leave gearing within the target net debt/EBITDA of 1.5–2.0x.
Forecasts and valuation
The change to Edison profit forecasts comes from the additional £250m share buyback, with FY25 sales reduced by c 4%, offset by additional margin expectations. Our FY24 forecasts are unchanged. FY25 PBT is £561m, down from £566m (-0.9%), EPS is 34.7p, up from 34.5p (+0.6%), and net debt is £1.4bn, up from £1.2bn. Our valuation remains unchanged at 654p per share.
Exhibit 1: Forecast summary
£m |
2022 |
2023e |
2024e |
2025e |
|
Year to December |
IFRS |
IFRS |
IFRS |
IFRS |
|
INCOME STATEMENT |
|||||
Revenue |
|
2,954 |
3,350 |
3,677 |
3,849 |
EBITDA |
|
292 |
532 |
699 |
839 |
Operating profit (before amort. and excepts.) |
147 |
147 |
390 |
537 |
|
Amortisation of acquired intangibles |
(260) |
(260) |
(260) |
(260) |
|
Exceptionals |
(157) |
(73) |
(50) |
(10) |
|
Reported operating profit |
(270) |
57 |
227 |
399 |
|
Net Interest |
(58) |
(65) |
(84) |
(108) |
|
Profit Before Tax (norm) |
|
89 |
325 |
452 |
561 |
Profit Before Tax (reported) |
|
(328) |
(8) |
142 |
291 |
Reported tax |
99 |
9 |
(28) |
(58) |
|
Profit After Tax (norm) |
69 |
268 |
357 |
443 |
|
Profit After Tax (reported) |
(229) |
1 |
114 |
233 |
|
Minority interests |
(5) |
0 |
0 |
0 |
|
Discontinued operations |
(80) |
(1,020) |
0 |
0 |
|
Net income (normalised) |
64 |
268 |
357 |
443 |
|
Net income (reported) |
(314) |
(1,019) |
114 |
233 |
|
Average Number of Shares Outstanding (m) |
1,406 |
1,349 |
1,335 |
1,276 |
|
EPS - normalised (p) |
|
4.1 |
19.5 |
26.8 |
34.7 |
EPS - normalised fully diluted (p) |
|
4.1 |
19.1 |
26.8 |
34.6 |
EPS - basic reported (p) |
|
(16.6) |
(75.5) |
8.5 |
18.2 |
Dividend (p) |
2.3 |
5.0 |
6.7 |
9.3 |
|
Revenue growth (%) |
8.5 |
16.6 |
15.6 |
9.8 |
|
Gross Margin (%) |
14.3 |
35.0 |
36.0 |
37.0 |
|
EBITDA Margin (%) |
9.9 |
15.9 |
19.0 |
21.8 |
|
Normalised Operating Margin |
5.0 |
11.6 |
14.6 |
17.4 |
|
8.5 |
16.6 |
15.6 |
9.8 |
||
BALANCE SHEET |
|||||
Fixed Assets |
|
11,114 |
5,611 |
5,400 |
5,208 |
Intangible Assets |
6,882 |
3,397 |
3,137 |
2,877 |
|
Tangible Assets |
2,599 |
777 |
826 |
894 |
|
Investments & other |
1,633 |
1,437 |
1,437 |
1,437 |
|
Current Assets |
|
2,873 |
1,318 |
1,414 |
1,478 |
Stocks |
1,025 |
510 |
550 |
577 |
|
Debtors |
1,426 |
713 |
769 |
806 |
|
Cash & cash equivalents |
355 |
58 |
58 |
58 |
|
Other |
67 |
37 |
37 |
37 |
|
Current Liabilities |
|
2,978 |
1,533 |
1,653 |
1,695 |
Creditors |
2,347 |
1,179 |
1,271 |
1,333 |
|
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 |
1,479 |
1,077 |
Long term borrowings |
1,433 |
576 |
1,286 |
1,364 |
|
Other long term liabilities |
2,408 |
1,253 |
193 |
(287) |
|
Net Assets |
|
7,168 |
3,567 |
3,681 |
3,914 |
Minority interests |
39 |
0 |
0 |
0 |
|
Shareholders' equity |
|
7,129 |
3,567 |
3,681 |
3,914 |
CASH FLOW |
|||||
Operating Cash Flow |
292 |
532 |
699 |
839 |
|
Working capital |
(148) |
(146) |
(98) |
(43) |
|
Exceptional & other |
(83) |
(159) |
(305) |
(135) |
|
Tax |
(8) |
17 |
(85) |
(106) |
|
Net operating cash flow |
|
53 |
244 |
210 |
555 |
Capex |
(31) |
(93) |
(211) |
(238) |
|
Acquisitions/disposals |
(7) |
0 |
0 |
0 |
|
Net interest |
(82) |
(65) |
(70) |
(98) |
|
Equity financing |
0 |
(93) |
(565) |
(200) |
|
Dividends |
(77) |
(81) |
(74) |
(96) |
|
Other |
|||||
Net Cash Flow |
(144) |
(88) |
(710) |
(78) |
|
Opening net debt/(cash) |
|
343 |
487 |
572 |
1,282 |
Closing net debt/(cash) |
|
487 |
572 |
1,282 |
1,360 |
Source: Edison Investment Research
|
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Research: TMT
IP Group’s largest life sciences holding at end-2023, Oxford Nanopore (ONT), which developed a new generation of nanopore-based sensing technology, announced earlier today that it has successfully completed an issue of 66.7m ordinary shares (c 7.6% of its issued capital), raising £80m of gross proceeds (upsized from the initial £75m as the issue was multiple times oversubscribed). This includes a £50m strategic investment by Novo Holdings (the controlling shareholder of Novo Nordisk and Novozymes), with the remaining proceeds coming from institutional investors. As per the announcement, Novo Holdings currently intends (subject to availability and price, among others) to purchase another £10m worth of ONT shares over time in the market.