6 March 2025
If you are covering Melrose’s full year results, please find comments below from Matt Dorset, equity analyst at Quilter Cheviot:
“Melrose, the aerospace technology group, released very strong full year results this morning, surpassing consensus expectations. The company reported impressive growth with revenue up 11%, earnings up 42%, and a positive inflection in free cash flow.
“The engines segment led the way with a 26% increase in sales, driven by robust aftermarket revenues. The Aerospace segment also saw significant benefits from a strong increase in the aftermarket for Defence, with Melrose supplying engines for Gripen fighter jets and components for the F-35. However, the structures segment faced challenges, with sales up only 3% due to supply chain issues.
“The defence sector remains a key area of focus, with global tensions and conflicts driving up military spending. Across Europe, many countries have pledged to increase defence spending to 2.5% of GDP, with some advocating for as much as 5%. Melrose is well-positioned to support this trend with its established footprint in the US, UK, Sweden, the Netherlands, and Germany.
“Looking ahead, Melrose expects strong growth to continue. For 2025, the company is guiding to 7% revenue growth and 24% earnings growth in the aerospace segment. More importantly, Melrose has set ambitious five-year targets, aiming for high single-digit revenue growth, with earnings margin increasing to 24% from the current 16%, free cash flow reaching £600 million, and earnings per share growth above 20%.
“In terms of valuation, Melrose trades at 14.8x 2025 EV/EBIT, below its peers. We continue to view Melrose as an attractive pureplay aerospace company, benefiting from market recovery and self-help initiatives, combined with an appealing valuation."
