It has been a good summer for Melrose - the turnaround specialist acquired German utility meter maker Elster and half-year figures have come in on target. But it's Elster that's likely to dominate headlines from here, and experience suggests progress will be swift - so the shares still look attractive.
Melrose has wasted no time telling Elster staff what's expected of them, and management changes are under way just a week after completing the deal. That's the "Melrose way". Get it right, and margins should rise 300 basis points to around 16 per cent within three years. That's where group returns sit right now, up from just 10 per cent four years ago when Melrose bought FKI. New factories and heavy investment in driving business overseas make further progress highly likely. Group profit before tax rose 16 per cent to £81.9m once costs racked up buying Elster and refinancing are stripped out, driven largely by fast-growing lifting businesses Crosby and Bridon. Moreover, orders continue to exceed sales and there's good visibility, too.
Broker JPMorgan Cazenove reckons Elster will add £54m of operating profit this year and £169m in 2013. On that basis, it expects adjusted pre-tax profit of £212m for the full year, giving adjusted EPS of 15.7p (£155m and 13.5p in 2011).
MELROSE (MRO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 241p | MARKET VALUE: | £3.05bn | |
| TOUCH: | 241-242p | 12-MONTH HIGH: | 253p | Low: 150p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 49p* | NET DEBT: | 50% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p)** | Dividend per share (p)** |
|---|---|---|---|---|
| 2011 | 517 | 58.9 | 5.40 | 2.60 |
| 2012 | 565 | 46.3 | 4.70 | 2.60 |
| % change | +9 | -21 | -13 | - |
Ex-div: 19 Sep Payment: 19 Oct *Includes intangible assets of £879m, or 69p a share **Adjusted for rights issue | ||||
