Melrose Industries - Positive progress continues

Melrose Industries’ impressive H1 performance demonstrates the strength of the business, assisted by aftermarket exposure, given the current supply chain issues in the aerospace sector. A new buyback programme and investment in future organic growth, along with positive market dynamics, offer further positive earnings drivers through the medium term.

Melrose Industries - Crystallisation of the 2020 Employee Share Plan

The crystallisation of the employee plan highlights the value created through the GKN acquisition, benefiting from the strong performance from the restructuring programme and current positive trends in the aerospace sector. The impact of the scheme on our forecasts will be limited, having already assumed the full value the scheme would accrue. There are no changes to our valuation of 654p per share as set out in our previous note.

Melrose Industries - Steady climb

Melrose Industries continues to deliver strong performance improvements and is on track to achieve its ambitious margin targets in 2025 (Engines 28% and Structures 9%). As a focused aerospace group, Melrose is also benefiting from the positive long-term drivers in the sector with record civil order backlog. This bodes well for continued earnings momentum and cash generation to drive shareholder value.

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

Invinity Energy Systems - Mistral Recharging

Friday’s trading update highlighted a sharp drop in booked revenue and a changed outlook. Near term, the timing of sales closures causes a shift in revenues to the right. While interest in the company’s flow batteries remains strong, Invinity has also decided to constrict early revenue on Mistral to allow time to complete the planned cost reduction exercise and drive stronger margins in the long term. This will reduce FY 25 revenues and profitability knocking EBITDA breakeven into FY 26. With ca

Invinity Energy Systems; Trading Update

Invinity Energy Systems (IES LN), which develops Vanadium Flow Batteries (VFBs) for utility scale grid storage, has issued a Trading Update and announced management changes. IES reported 1H 2024 revenue of just £1.6m and noted that FY 2024 revenue will be significantly impacted, due to upcoming U.S. elections and the UK change in government. Our FY 2024 revenue estimates are reduced to £4.8m (from £37.8m) and EBITDA loss to £21.2m (was £19.3m); the low gross margin on the current generation VFB

Renold - In-line trading: Acquisition boosts FY26E EPS by 15.9%

The group’s AGM update highlights underlying trading remains in-line with existing expectations. It has also announced the bolt-on acquisition of MAC Chain for $31.4m. This business is expected to be immediately EPS enhancing, boosting the group’s position in targeted forestry CVC chain markets and expanding its western US and Canadian presence. The initial 7.5x acquisition multiple reduces to below 6.0x after the benefit of identified manufacturing and other synergies. We upgrade FY25E EPS by 5

Morning Note – 10 September 2024

PANMURE LIBERUM: SigmaRoc: Interim results demonstrate value being created

SigmaRoc (SRC LN) - H1 results: good progress, full year expectations unchanged 

SigmaRoc, the Northern Europe leader in the lime and minerals market, has announced a promising set of interim results as the Group continues to execute on its largest acquisition to date. Despite LFL revenue falling 8% (+60% reported), good cost management meant adj. Proforma EBITDA fell only 3%, supporting a 110bps margin expansion to 22.2%. Proforma adj. EPS also grew 6%, highlighting the accretive nature of CRH’s lime assets excluding synergies. We continue to see good value in SigmaRoc as t

Epwin (EPWN LN) - H1 results in line, extension of buyback programme 

Epwin’s pre-close trading update (6th August) already provided an outline on how well the business had operated during H1-24 and reiterated that trading was in line with FY24 expectations; today’s results add detail. As expected, revenue declined yoy to £158.0m (HY23: £180.0m) due to a reduction in resin surcharges, weaker industry demand and management’s focus on managing volume and margin. The success of the latter is reflected in operating margin increasing 100bps to 7.6% (HY23: 6.6%) and abs

PANMURE LIBERUM: MPAC: A high ROIC model

Zeus Industrials Round-Up - 13 September 2024

The UK industrial sector continues to show promising signs of recovery, with manufacturing PMI reaching a 26-month high of 52.5 in August as all survey indicators but one expanded. Economic data has also been encouraging, with UK pay growth cooling to a two-year low and inflation rising only slightly in July – supporting the case for further interest rate cuts this year by the BoE.

H1’24 results: positive momentum delivers strong results

For the six months to 30 June 2024, Mpac Group reported significant revenue, margin and profit growth. Revenue of £60.0m was +14%YoY, (adj.) EBIT of £4.5m, +105%YoY, operating margin 7.5% vs 4.2% H1 23, and EPS of 15.0p compared to (2.2p) a year earlier. Year-to-date order intake remained strong at £59.7m, +6% on H2 23 (H1 23 of £62.4m was distorted by pent-up demand unwinding), with a closing order book of £71.4m providing extensive coverage over forecast revenues for the remainder of 2024.

To free cash flow

PANMURE LIBERUM: Luceco: Interim results highlights top quartile performance

Morning Note – 9 September 2024

Lords Group Trading - Interim results – Progress in-line

Lords Group has reported resilient H1 results despite continued challenging market conditions for the building materials sector, and the company remains on track to meet market expectations for FY24E earnings. The company reports that conditions in the plumbing and heating sector have improved following sector specific issues in Q1. In the wider building products market Lords sees evidence of some improvement but is not budgeting on a material upswing during the current year. We are reducing our

Mpac Group+ (MPAC, House Stock at 465p) - Positive H2 momentum– FY24F unchanged