27 February 2026
“Melrose, the UK‑based aerospace manufacturer, has delivered a solid set of results that keep the business firmly on track to meet the medium‑term targets set out last year. Revenue rose 8% and operating profit (EBIT) was up 23%, with both metrics coming in slightly ahead of market expectations. Earnings per share (EPS) increased 25%, and perhaps most notably, free cash flow returned to positive territory at £125 million – a 21% beat and a significant year‑on‑year improvement. That momentum is important as Melrose builds towards materially higher cash generation through the medium term.
“Performance continues to be led by the Engines division, where sales grew 15% and EBIT rose 27%, supported by strong aftermarket activity, healthy new engine deliveries and ongoing operational improvements that are widening margins. The Structures segment delivered slower, but expected growth with sales up 3%; margin expansion helped drive EBIT 10% higher.
“Looking to 2026, Melrose is guiding to 10% revenue growth and 16% EBIT growth, largely driven again by Engines. While the sales outlook is in line with expectations, EBIT is slightly below consensus due to foreign exchange effects. Free cash flow of £150–200 million is in line with forecasts and represents a further step up of around 40% at the midpoint. Crucially, management reiterated all medium‑term targets, including free cash flow rising to £600 million by FY29.
“The capital returns story is also strengthening, with a 20% increase in the dividend, now yielding around 1%, and the announcement of a £175 million share buyback, equivalent to roughly 2% of the market cap.
“On valuation, Melrose trades at around 13x 2026 EV/EBIT, below its long‑run average and relative to peers. As free cash flow continues to scale, the shares look increasingly attractive on a cash‑yield basis, with Melrose set to offer the highest free cash flow yield in its peer group by 2029, assuming it delivers on its medium‑term plan.”
