Join our community of smart investors

Melrose given the brush by investors

It's swings and roundabouts at the turnaround specialist
September 1, 2017

The share price of Melrose Industries (MRO) pulled back on the publication of these results even though the turnaround specialist managed to follow up a reported pre-tax loss at the 2016 half year with a profit this time around. Melrose, which has a reputation for acquiring distressed manufacturing companies and putting them back on track, revealed that trading at its Brush subsidiary, which sells specialist equipment to the oil & gas industry, had continued to deteriorate. With “no recovery in generators expected in the foreseeable future”, the Brush business is now subject to a detailed review, but the news dampened sentiment despite some positive developments elsewhere.

216.9p

The glaring disparity in the comparative top line is due to the marquee deal to acquire Nortek in August 2016. Nortek, a manufacturer of high-end air-conditioning systems for industry, along with security systems for homes and offices, contributed £987m in revenue and £146m in underlying operating profit; the former was flat on a pro-forma basis, while the latter represented an increase of 54 per cent on an impressive 5.5 percentage point increase in the underlying margin to 14.7 per cent. Chairman Christopher Miller said that Nortek had “delivered the fastest initial improvement in performance Melrose has ever achieved”.

JPMorgan Cazenove gives adjusted earnings before interest and taxation of £282m for the December year-end, leading to EPS of 9.6p, against £104m and 4.4p in 2016.

MELROSE INDUSTRIES (MRO)  
ORD PRICE:216.9pMARKET VALUE:£4.21bn
TOUCH:216.7-216.9p12-MONTH HIGH:262pLOW: 146p
DIVIDEND YIELD:1.5%PE RATIO:nil
NET ASSET VALUE:102p*NET DEBT:34%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2016**0.10-9.2-0.60.3
20171.0947.82.01.4
% change+937--+367
Ex-div:07 Sep   
Payment:06 Oct   

*Includes intangible assets of £2.45bn, or 126p a share

**Restated for August 2016 rights issue