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Melrose begins GKN reshape

The turnaround expert completed the biggest hostile takeover in the City since Kraft poached Cadbury in 2009
March 8, 2019

Manufacturing turnaround specialist Melrose Industries’ (MRO) year was defined by its £8bn hostile takeover of engineering group GKN in March 2018. And the dismantling has begun. It announced on the day prior to releasing its full-year results that it had agreed to sell Walterscheid Powertrain Group, previously part of GKN, to private equity group One Equity Partners. Meanwhile, one of its subsidiaries has sold its minority 43.6 per cent stake in SABCA, which produces parts for aircraft and space launchers, to part of French group Dassault. Of the £200m in combined proceeds, 10 per cent will go towards lowering GKN’s pension fund deficit.

IC TIP: Buy at 187.5p

The rest will go towards reducing Melrose’s debt. The group’s net debt to cash profits ratio stands at a multiple of 2.3, ahead of previous guidance at 2.5. At the time of acquisition, around 10 per cent of GKN’s net sales were identified as coming from loss-making contracts, requiring £629m in provisions from Melrose. This lifted the total level of provisions on the balance sheet to £1.06bn.

Broker Investec is forecasting full-year 2019 pre-tax profits and earnings per share of £862m and 13.4p, against £703m and 13.3p in 2018.

MELROSE INDUSTRIES (MRO)  
ORD PRICE:187.5pMARKET VALUE:£9.1bn
TOUCH:187.4-187.5p12-MONTH HIGH:249pLOW: 146p
DIVIDEND YIELD:2.5%PE RATIO:na
NET ASSET VALUE:170p*NET DEBT:42%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20140.3212.50.85.3
20150.26-30.7-0.31.0
20160.89-69.3-2.62.2
20172.09-28-1.24.2
20188.61-550-124.6
% change+312--+10
Ex-div:04 Apr   
Payment:20 May   
*Includes intangible assets of £11bn, or 228p a share