Citi ups target for Melrose on strong cash generation

Citi has lifted its target price for aerospace manufacturing group Melrose from 620p to 735p and placed the stock on 'catalyst watch' ahead of company's results next week, hailing the company cash-generating abilities.

"As we draw closer to 2025, we think the market is likely to give more credit for the very strong cash generation the company is guiding to which should really kick in from 2026," Citi said in a research note on Thursday.

The bank said that Melrose's potential is more attractive – in terms of estimated free cash flow yield for 2027 – than sector peers MTU Aero and Safran. And yet, the stock trades at an enterprise value-to-EBIT multiple of 13.5, a "considerable discount" to Safran which trades at a multiple of17.

"In our view, such a discount makes little sense (even acknowledging Melrose’s GTF exposure [the Pratt & Whitney engines that have been recalled]) given similar mid-term profit growth and cash conversion."

The stock was up 1.9% at 634.6p by 1604 GMT, having now risen more than 13% since the start of the year.