Melrose sees future boost to earnings, Nortek disposals from Trump tax cut

Melrose Industries said US tax cuts signed off by Donald Trump at the end of last year will reduce its group effective tax rate for 2018.

After the US Tax Cuts & Jobs Act was enacted on 22 December, Melrose said the full implications on its business was "still being reviewed" but it anticipated no effect on the just completed calendar year other than a non-cash, net tax credit due to the revaluation of deferred tax balances which will be excluded from underlying results.

However the Republican cuts to corporate tax rates are expected to reduce the Melrose group effective tax rate for the financial year to 31 December 2018 to approximately 24% from previous guidance of 28%, being higher than the 21% national tax rate due to the 3-3.5% impact of state taxes.

Melrose said the new tax act will "significantly" reduce the amount of US tax payable on any disposal from within its Nortek arm.

Broker Numis said the lower tax rate will lift adjusted earnings per share 5.6% in 2018.

But more important, it said, is the enhanced cash flow which these changes will deliver from the operations, which it believes will increase the final price of any disposals.

"In addition, the lower tax rate also increases the options for the management in selling Nortek in multiple parts due to the lower tax on the gains (only the Nortek group element sold from within the UK plc group can be sold free of tax) with Ergotron the most likely first exit."