10 May 2023
If you are covering Melrose’s latest trading statement, please find below a comment from Jarek Pominkiewicz, equity research analyst:
“Melrose delivered a strong trading update today, with activity ahead of expectations pointing towards a positive start to 2023. Revenues were up 19% on the year, with the Engines business growing by 28% and the Structures unit by 14%. It has also adjusted its profit guidance for the year as tailwinds gather pace.
“Management also provided a strategy update. It now intends focus solely on the Aerospace business over the next 12 months, adding that it will remain a pureplay aerospace business thereafter (with no unrelated industrial business acquisitions planned). While this removes an aspect of Melrose's strategy (although we would not be surprised if management decided to return to it in some form in the future), it simplifies the investment case and removes uncertainty.
“That said, post the Dowlais demerger last month, Melrose has become a market-leading aerospace pure-play supported by the tailwinds of market recovery and a self-help story. We see upside being delivered from a) the increasing contribution from the margin-accretive portfolio of engine revenue and risk sharing, b) leverage on the recovery in civil aerospace volumes, as well as c) operational improvement actions. We think it remains undervalued versus its aerospace peers, and as such we would not be surprised to see a further re-rating as the year plays out, particularly given the planned share buybacks once it’s restructuring comes to completion.”
