Melrose Industries - Continued outperformance

Melrose Industries’ shares have been re-rated over the past year, reflecting the company becoming a pure aerospace group and its improving operational performance. Attractions remain from the Risk and Revenue Sharing Partnerships (RRSPs) and associated cashflows along with the investments being made, such as in additive fabrication, to drive organic growth beyond the already positive aerospace market.

Melrose Industries - Increasing trajectory

The aerospace cycle is in strong recovery mode and Melrose Industries, assisted by the restructuring actions, is taking full advantage at both the top line and profit level. Internal momentum and market recovery provide confidence that management’s target returns set out for FY25 will be achieved, offering a further positive valuation catalyst.

Melrose Industries - GE partnership expansion

The announcement with GE further demonstrates the market-leading position of GKN Aerospace: technology and production capability to win original equipment (OE) work and repair and maintenance capability to win greater aftermarket work. Arguably the most important element for shareholders is the extension within the risk and revenue sharing partnerships (RRSPs), which demonstrates the importance of GKN Aerospace to GE’s overall engine offering while also providing greater exposure to the lucrativ

Melrose Industries - Engine for growth

Melrose Industries’ investor event focused on the key GKN Aerospace engines business (Edison estimate 81% of FY23 profit). The industry-wide Risk and Revenue Sharing Partnerships (RRSPs) and its position as a design partner on both the next-generation engines under development are testament to the capabilities and technologies it possesses. Investment continues in order to maintain such leading positions as seen in additive fabrication and manufacturing, which includes a new £40m facility to sup

Melrose Industries - Clarity on GTF helpful for investors

The announcement about the expected impact of the GTF engine programme, in which Melrose has a 4% share, removes an uncertainty from the shares. The expected cost of £200m equates to 14p a share. While material at 2% of our valuation, it should not detract from the underlying attractions of a focused group serving the rapidly recovering aerospace market.

Melrose Industries - Building returns

The improving aerospace market, original equipment and aftermarket, combined with internal restructuring, are driving strong profit recovery. This is offering the potential for significant returns to Melrose shareholders as seen with the additional share buy-back announced.

Melrose Industries - The stars are aligned

Following the demerger of Dowlais automotive, Melrose Industries is a focused aerospace group with a retuned strategy, still with shareholder value at its core, to develop its capabilities long term as a focused entity. The flexion point in the aftermarket partnerships, benefits from the operational actions and the accelerating recovery in the aerospace market provide strong positive dynamics for Melrose. Profit is set to expand significantly, well beyond the pre-acquisition levels, fuelling a

Melrose Industries - Positive trajectory

Melrose Industries’ results highlight that the Aerospace division is recovering ahead of previous management expectations. This should increase the attractions of the new Melrose group post demerger when it becomes a focused aerospace-orientated group. The other half of the demerger, automotive-orientated Dowlais, will offer recovery potential (10%+ margin targets) along with corporate activity expectations.

Melrose Industries - Releasing the potential

Melrose’s demerger of the automotive businesses and the listing of separate entities (NewCo and Melrose with Aerospace) will provide greater transparency of valuation. Using listed peer ratings for the two entities, we estimate a combined valuation per current Melrose share of c 200p. In addition, both companies will be able to accelerate their strategic pathways with greater potential access to capital markets. Melrose shares have declined 25% since the announcement of the demerger despite mana

Melrose Industries - Two are better than one

Melrose has started the GKN businesses realisation process by announcing the demerger of the automotive businesses. This will permit automotive to prosper as a standalone listed entity, developing growth, including in electric vehicles, and corporate opportunities within the automotive arena. Melrose will continue its ‘buy, improve, sell’ strategy, including completing the restructuring of the aerospace business with the flexibility to undertake the next deal. This should release value while als

Marathon Oil Corporation: Portfolio Restructuring, Crude Oil Outlook & Other Drivers, Financial Forecasts, DCF & Comparables Valuation, ESG & Other Risks (06/22)

Marathon Oil delivered a mixed result for the previous quarter as it failed to meet Wall Street expectations on the revenue front but managed to deliver an earnings beat. The company continues to strong track record of capital return to its shareholders. They generated $1.3 billion in cash flow from operations and $940 million in free cash flow before working capital with a reinvestment rate of just 27%. Additionally, despite significant winter weather impacts in the Bakken during April 2022 tha

Melrose Industries - Aerospace rising

Following the disposal of Ergotron, Melrose has now completed four transactions since 2005 with an average IRR of 28%. Focus now turns to the fifth deal, GKN Aerospace. Recovery in the aerospace market and management confidence to lift margin expectations from 12% to 14%+, along with greater disclosure on the engine contracts, suggest GKN is recovering strongly, albeit value realisation is likely a few years out. In the shorter term, the fully restructured GKN Powder Metallurgy and GKN Automotiv

Melrose Industries - Accelerating sustainability

Melrose embraces sustainability through two avenues: internally through continuous development of its ESG practices and externally through the development of enhanced or completely new products that assist global decarbonisation. The former offers the potential to improve the internal operations of acquired businesses, an inherent part of Melrose’s ‘buy, improve, sell’ strategy, and the latter offers accelerated growth opportunities through the increasing push to reduce global emissions. Improve

Melrose Industries - Short-term trading versus long-term value creation

Recent weakness in the share price (down 25% in Q122) reflects investors’ macro concerns. Melrose Industries’ value realisation occurs through disposing assets to vendors aware of the longer-term value. We expect disposals in 2022 (Ergotron and possibly GKN assets) to prove Melrose’s ‘buy, improve, sell’ model once more and support our valuation.

Jersey Electricity - Decarbonisation fuelling growth

Jersey Electricity (JEL) is intensifying its focus on energy security and electrification across Jersey by creating opportunities to accelerate growth. It successfully navigated the volatile wholesale power price environment in 2020–23, shielding its customer base from the worst inflationary pressures. However, from 2025, as older, more favourable hedges expire, this protection will diminish. Therefore, we have marginally reduced our earnings forecasts to account for the increased exposure to wh

LIBERUM: CEO Video: Matt Wragg, Gattaca plc:

SP Angel Morning View: Copper prices hit $9,700/t as China smelts concentrates for zero charge Tc/Rc

Q1 Operating Results

Another Good Year of Diversified Growth with More to Come in 2024 CCapital have released their Q1 operating results. Overall, revenue has come in slightly lower than expected at $80.2m vs TamE of $85.9m but is largely tracking in line with our FY24 annual estimate and we note the company has maintained guidance. Drilling revenue for this quarter was impacted by a fall in utilisaztion rates as well as general remobilisation geographically but we expect a strong recovery throughout the year as k

Quadrise+ (QED, House Stock at 1.4p) - Drilling to commence in Utah project

Morning Note – 22 March 2024

LIBERUM: New Energy Nuggets: Hydrogen - the future is green

HY22/23: resilient business model supported by an ambitious Capex plan FY202

An encouraging set of half year results from National Grid, reflecting the resilience of the model in a challenging and turbulent macroeconomic environment, mainly driven by the regulatory frameworks and electricity transmission and distribution. National Grid upgraded its Capex guidance to £40bn between 2022 and 2026 to accelerate its transition to low carbon generation and enhancing its UK and US electricity distribution as well as the underlying EPS growing in the middle of the 6-8% CAGR rang

FY22/23: High visibility on inflation-protected results

National Grid published strong FY22/23 earnings (year ended March 31) reaffirming the strength of its business mix during inflationary periods. The group completed its strategic pivot with the disposal of 60% of the UK Gas assets to focus mainly on electricity transmission/distribution over an intensive 2026 £40bn capex plan. The outlook over the five-year period 2020/21 to 2025/26 remains unchanged.

Zeus Top Picks for 2024 - 2023 review and outlook for 2024

On 9 January last year, we set out our ten top stock picks for 2023, for what turned out to be another relatively poor twelve months for UK equities due to two wars, stubbornly high inflation and further tightening of monetary policy. This was even as other major markets, such as the US, largely recovered in the year. In the 2023 calendar year, the AIM All-Share index fell 8.2% and is still 42% off its 2021 high. From the release of our 2023 top picks note, the average total return (assuming div

Strix (KETL LN) - FY23 results, forecasts rebased

Strix has reported FY23 results to 31 December 2023 with adjusted PAT of £20.1m, in line with our updated forecast and company guidance provided in January. Revenue grew 35.2% to £144.6m, benefitting from the full year inclusion of the Billi acquisition, albeit slightly below our forecast of £151.0m. Its core Kettle Controls division also performed robustly, growing 2.7%, ahead of the broader market and indicating market share gain. Recent acquisitions have noticeably improved the Group’s growth

PROGRESSIVE: Severfield: Targeted acquisition strategy aids growth path

Acquisitions have been an important element of Severfield management’s growth strategy, with the aim of adding new products, sectors and regions to what we have identified as exciting long-term organic opportunities. In this Spotlight report, we focus on the group’s targeted M&A approach, highlighting three significant deals.

Judges Scientific+ (JDG, House Stock at 8,900p) - HY; strong order book, FY23F unchanged

Invinity Energy Systems - Progress on Three Fronts

Invinity is making major progress commercially, technically and financially. A full manufacturing agreement has been signed with Taiwanese partner Everdura. This brings additional manufacturing capacity to serve the existing re-seller agreement without the need for new capital. Validation testing on the next-generation Mistral flow battery has verified performance targets, paving the way for commercial launch later in the year. Finally, discussions on one or more strategic partnerships are progr

Morning Note – 4 April 2024