Engineering turnaround specialist Melrose Industries (MRO) had a “tremendous” 2013, gushes management. Five businesses that were part of the landmark FKI acquisition in 2008 were sold for £950m - three times what Melrose paid. It has just handed back £600m to shareholders and profits at the German utility metering business Elster spurted a third higher. Clearly, the big question now is: what will management buy next?
Another engineering business either in the US or Europe is most likely. Predicting the timing, however, is never easy. Easier funding means competition from trade buyers and private equity is more intense now. Melrose is “ready and keen to buy again”, but we understand nothing is imminent. Remember, too, that Melrose withdrew from a bidding war for Charter in 2011 - clear evidence that it will not overpay. It was another nine months before it finally bagged Elster for £1.5bn.
That was money well-spent. Elster's pro-forma margins grew by 500 basis points, driving underlying operating profit up by 37 per cent to £194m, and further growth looks likely. However, management admits growth will be harder to come by at the remaining FKI businesses, rope-maker Bridon and generators business Brush. Broker Investec Securities expects adjusted pre-tax profit of £239m in 2014, giving EPS of 16p (from £306m and 16.4p in 2013).
MELROSE INDUSTRIES (MRO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 303p | MARKET VALUE: | £ 3.2bn | |
| TOUCH: | 302-303p | 12-MONTH HIGH: | 331p | LOW: 230p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 32 | |
| NET ASSET VALUE | 204p* | NET DEBT: | 6% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 1.30 | 82 | 11.0 | 7.7 |
| 2010 | 1.04 | 109 | 20.8 | 11 |
| 2011 | 1.08 | 91 | 13.8 | 7.4 |
| 2012 | 1.05 | 6 | -0.9 | 7.6 |
| 2013 | 1.73 | 171 | 9.5 | 7.75 |
| % change | +65 | - | - | +2 |
Ex-div: 16 Apr Payment: 15 May *Includes intangible assets of £2.6bn, or 244p per share | ||||
