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.

Renold - Strong end to FY24: EPS up 11%. Robust FY25: EPS up 27.6%

The FY24 year-end update is very upbeat signalling trading being materially ahead of expectations, with a better-than-expected profit out turn and stronger cash generation. It continues to strengthen margins through efficiencies and investment in modern equipment. The order book remains close to record levels providing a robust view of future forecasts. In FY24E we upgrade EPS by 11% and in FY25E a significant upgrade of 27.6%. It looks capable of declaring a dividend in FY25 as well as manageme

Billington Holdings - Record result boosts dividend; forecasts upgraded

FY23 results show very strong growth over FY22, driven by strong Structural Steel activity, with results slightly ahead of upgraded profit expectations, while stronger than expected cash flow resulted in an unexpectedly generous dividend of 33p (offering a FY23 yield of 7.0%). The group now has net cash of £22.1m and is debt free and is therefore in a strong position for potential M&A activity. Following the recent £90m of new orders to increase the order book to record levels we conservatively

Morning Note – 15 April 2024

Invinity Energy Systems - Update on Strategic Investment

Invinity’s update on discussions with strategic investors reveals interest from multiple parties. While this has slightly delayed finalising an agreement it increases the potential for a better outcome. Although details are unknown at this stage, we think there is enough in the statement to be comfortable that any agreements will be consistent with the company’s strategy of growing market share in core markets and using a licencing and royalty model in other markets.

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.

FY results: strong cash flow

Morning Note – 16 April 2024

Warns on brine supply costs

SP Angel . Morning View . Copper prices hold higher as China processing fees fall below $0/t amid low feedstock availability

Clean and competitive fertiliser

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

Norcros - FY24 trading in line with expectations

FY24 trading underpins Norcros’s compelling investment case, where its new product development initiatives, market positioning and self-help initiatives allow it to take market share in both the UK and South Africa. We believe that Norcros’s key strengths are underappreciated and that legacy issues have been resolved. Its rating is low at 5.6x FY24e P/E, which is attractive, especially when compared to its yield of 5.7% on its well-covered dividend. We retain our estimates and value the shares a

LIBERUM: Gattaca: Resilient contract performance, perm tough

Norcros (NXR LN) - FY24 trading update

Norcros has provided a FY24 trading update for the year to 31 March 2024 showing revenue and profitability to be in line with expectations. Reported revenue of c. £390m is down 11.1% yoy but broadly in line with Zeus forecast of £395.5m.

SP Angel Morning View: Lithium carbonate prices rise in China as refiner sentiment improves