Melrose trading 'materially ahead' of expectations

In the first four months of this year, revenue was up 19% on the same period a year earlier, with Engines showing the fastest momentum, up 28%, and Structures up 14%.

Melrose now expects full-year 2023 revenue of between £3.35bn and £3.45bn, adjusted operation profit of between £340m and £360m and adjusted EBITDA of £495m to £515m. Analysts had been expecting revenue of £3.4bn.

Head office costs are expected to fall to around £30m from £45m.

Melrose also said on Wednesday that for the next 12 months, its focus will be "to create further substantial value for shareholders by maximising the embedded quality and potential of Aerospace". Beyond that, it will continue as a pureplay aerospace company. Melrose recently spun off its automotive business GKN.

As a result, it will not seek to make another acquisition of an unrelated industrial business or, in the near term, a material aerospace business.

Chief executive Simon Peckham said: "Aerospace has huge embedded value and an EBITDA of £1 billion is achievable within the next few years, much of this coming from the premium Engines business.

"With the new simplified strategy for Melrose announced today, we look forward to explaining the full potential of Aerospace at the upcoming capital markets event next week including the route to realising this value."

At 0915 BST, the shares were up 3.4% at 438.74p.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: "Melrose has issued its first update since the demerger of its Dowlais businesses, and things got off to a promising start. Melrose saw revenues from both the Engines and Structures divisions soar by double digits in the first four months of the year.

"There are also structural growth drivers which looks set to play into Melrose’s hands. Flying hours in the US and Europe have returned to pre-pandemic levels, and the easing of restrictions in China also provides the industry with a welcome boost. And after several years of covid-related underinvestment, airlines are now looking to upgrade their ageing fleets. That's resulted in an order backlog to supply components for more than 12,000 Boeing and Airbus aircraft, meaning we see potential for revenue to continue growing at double-digit rates for the next couple years.

"The group’s restructuring efforts should be complete in the next 12 months. As a pureplay Aerospace business, the group now has the potential to attract a valuation reflective of a high-quality business in an improving market backdrop. Whether the group maximises value though will depend on how it navigates supply chain challenges and business improvements in a post-demerger world."