Shares in Melrose Industries (MRO) rose 6 per cent as the company announced it was changing its business model, and said it should hit a medium-term adjusted profit margin target by as early as next year.
In updated guidance following the recent demerger of its automotive business, the company ruled out making near-term aerospace acquisitions or any “unrelated industrial business”. Analysts said this signalled the end of its famed ‘buy, improve, sell’ business model it has adopted since its 2003 flotation. Instead, the company said it would focus on completing the restructuring of the aerospace business over the next 12 months and then return cash to shareholders via buybacks.
RBC Capital Markets analyst Mark Fielding described the news as the “end of an era”, but said the strong trading update will drive up brokers’ forecasts and generate positive momentum in the company’s shares.
In the update, Melrose said revenue for the first four months of this year was up 19 per cent on the prior year. Its adjusted operating margin, prior to central costs, had also increased “substantially” to around 10 per cent and it expected to hit a medium-term target of 14 per cent “on a run rate basis during 2024”.
It set an adjusted operating profit forecast, before central costs, of between £340mn-£360mn, some 5-11 per cent higher than analysts’ expectations. It also plans to cut central overheads by one third to £30mn, meaning its post-plc profit will be 11-18 per cent higher than expectations.
Hargreaves Lansdown equity analyst Aarin Chiekre said that, as a pureplay aerospace business, Melrose had the potential to "attract a valuation reflective of a high-quality business in an improving market backdrop”.
