Currency in GBP
Last close As at 26/05/2023
GBP4.81
▲ 76.10 (18.82%)
Market capitalisation
GBP6,653m
Research: Industrials
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 also providing optionality for shareholders.
Melrose Industries |
Two are better than one |
Demerger and interim results |
Industrials |
8 September 2022 |
Share price performance Business description
Analyst
Melrose Industries is a research client of Edison Investment Research Limited |
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 also providing optionality for shareholders.
Year end |
Revenue (£m) |
PBT* (£m) |
EPS* |
DPS |
P/E |
Yield |
12/20 |
7,723 |
(41) |
(0.6) |
0.75 |
N/A |
0.5 |
12/21 |
7,496 |
252 |
4.1 |
1.75 |
33.3 |
1.3 |
12/22e |
7,718 |
307 |
5.6 |
2.25 |
24.6 |
1.6 |
12/23e |
8,334 |
484 |
9.2 |
3.00 |
14.9 |
2.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Melrose has announced plans to demerge the automotive activities (Automotive and Powder Metallurgy divisions) into a new company listed on the London Stock Exchange. Reflecting the continued restructuring being undertaken, the smaller Aerospace division will remain part of the Melrose group, which will continue to pursue its successful ‘buy, improve, sell’ strategy. The demerger process is expected to be completed in Q2 or Q323. There are no tax issues and the pensions are already aligned to the businesses.
Melrose’s first half results were in line with expectations. Operating profit fell 13% due to softer automotive activity, but PBT increased 12% and EPS 22% to 2.2p, leading to a 10% increase in the dividend to 0.825p. Aerospace’s recovery continued, with sales +11% and operating profit +65% helped by a 1.5pp increase in the margin to 4.9%. Automotive volumes fell 3% and sales flat, reflecting the well-documented supply chain issues. Operating profit declined 37%, with a 2.3pp decline in the margin to 3.9% partly due to £30m of inflationary pressures, which are expected to reverse in the second half of the year. There were an encouraging £2.6bn life of programme wins in the half, including 55% from electric and full hybrid. Powder Metallurgy sales fell 9%, but the operating profit decline was held to 14% and margins declined only 1.5pp to 10.5%, reflecting the success in inflationary pass-through that had an effect from H221. Net debt increased to £1.3bn due to higher working capital affected by supply chain issues and the commencement of the £500m share buy-back. The outlook is for the normal H2 seasonality, along with accelerating recovery momentum in Aerospace and Automotive benefiting from improving end markets along with the recovery of inflationary cost pressures.
Our sum of the parts valuation of 246p was published in our recent note, Aerospace rising, after the capital markets event. The demerger does not change our figure, but provides a clear catalyst on the road to realising it.
|
|
Research: Healthcare
IRLAB Therapeutics announced that Ipsen, the out-licensing partner for its lead asset, mesdopetam, has commenced standard clinical studies for the drug. These preparatory studies are necessary to progress into Phase III and confirm the arrangement is progressing as planned. The three studies to be conducted on healthy volunteers include a pharmacokinetic, a drug-to-drug interaction and a mass balance study, and will be run in parallel with the ongoing Phase IIb study conducted by IRLAB. As top-line data from Phase IIb are expected around the end of CY22, the data from the Ipsen studies will support the late-stage development of the drug. We maintain our estimates and valuation of IRLAB at SEK6.40bn or SEK123.7 per share.
Get access to the very latest content matched to your personal investment style.