RBC Capital upgrades Melrose Industries to ‘outperform’
Melrose Industries
460.00p
16:34 04/10/24
RBC Capital Markets upgraded Melrose Industries on Monday to ‘outperform’ from ‘sector perform’ as it noted the share price has fallen around 15% from April highs but said the fundamentals remain "very supportive".
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The bank, which maintained its 650p price target, said the business is growing well and it expects further earnings upgrades. RBC is 4% above consensus for 2024E EBITA.
RBC noted that management did not upgrade the outlook for 2024 at the first-quarter results, but said that with revenues up 8%, and the higher margin engines up 21%, momentum was strong.
"The outlook implies a relatively flat H1/H2 progression in the engine business which could prove conservative.
"We see upside to the 28% margin target for Engines for 2024 given ongoing growth with an aftermarket and an H2 2023 level that was already at circa 28%.
"Our forecast for 29% Engine margins is the main driver in our EBITA forecast being circa 4% above consensus which is set at the midpoint of the company FY guidance for £550-570m EBITA on a pre-central costs basis (we are at £582m on this basis)."
RBC said it’s also 3% above consensus for 2025E and about 6% above the company targets, which are for £4bn of sales with 17-18% Aerospace margin pre plc cost).
"And, we do not see the recent Airbus delivery forecast reduction as a significant headwind with the main driver being the engine aftermarket," it said, adding that an ongoing share buyback is supportive too.
At 1015 BST, the shares were up 1.3% at 585.75p.