Melrose Industries: Company and Shares Report

Melrose Industries buys good manufacturing businesses with strong fundamentals whose performance can be improved. Melrose finances its acquisitions using a low level of leverage, improves the businesses by a mixture of investment and changed management focus, sells them and returns the proceeds to shareholders. (Source: The Company’s businesses include Nortek and Brush Turbo generators. It operates through four seg-ments: Energy, which includes the Brush business that is engaged in supplying energy industrial products; Air Management, which includes the Air Quality & Home Solutions business that manufactures ventila-tion products and the Heating, Ventilation & Air Conditioning business that manufactures and sells split-system and packaged air conditioners, heat pumps, furnaces, air handlers and parts; Security and Smart Technology, which includes the Security & Control business along with the Core Brands and GTO Access Systems businesses; Ergonomics, which includes the Ergotron business that manufactures and distributes products designed with ergonomic features including wall mounts, carts, arms, desk mounts, and stands that attach to or support display devices. (Source: Melrose Industries PLC (“Melrose” or the “Group”) publishes the following trading update for the four months from 1 July 2019 to 31 October 2019 (the “Period”). All numbers are calculated at constant cur-rency. Melrose is trading in line with the Board’s expectations for 2019. The improvements in the businesses are being delivered at pace and the Melrose Board is confident this will unlock significant further shareholder value. Divisional highlights Aerospace Aerospace has achieved sales growth of over 5% in the Period compared to the same period last year, once again outperforming the Board’s expected longer term average growth rate. In addition, good mar-gin improvement has been delivered compared to the same period last year. Automotive Automotive delivered a higher profit and margin in the Period compared to the same period last year. In the Period sales were down 5% year-on-year, which includes the temporary effect of the General Mo-tors strike in the US. The business consequently showed, once more, its ability to perform impressively even with this market headwind. Powder Metallurgy Powder Metallurgy was impacted proportionately more than Automotive by the temporary effect of the General Motors strike, which led to a sales decline of 13% in the Period compared to the same period last year - without the strike revenue would have been in line with the Board’s expectations. In the Period, contracts were exchanged to acquire Forecast 3D, a leading player in 3D printing, which had 2018 sales of $19 million. This acquisition is expected to complete by the year end and will further expand Powder Metallurgy’s capabilities to become a leading global player in this fast growing and ex-citing market. Nortek Air & Security Nortek Air & Security has seen improving year-on-year trends in the Period compared to those seen in the first half of the year. The division achieved modest sales growth with margins similar to those achieved in the same period last year. Other Industrial Other Industrial is trading in line with the Board’s expectations. Net Debt Group net debt was in line with the Board’s expectations with significant investment and restructuring actions being funded to further improve performance and initial steps to reduce working capital in GKN being implemented as planned. Melrose will be presenting its full year results on 5 March 2020. Justin Dowley, Chairman of Melrose, said: “Melrose continues to do what it has always done well: improve businesses. Some macro conditions could be more helpful, but this has not stopped us continuing to transform the GKN businesses, delivering another trading period in line with expectations, and achieving better trends than seen in the first half of the year. We are excited about what is possible and confident in our ability to unlock signifi-cant further shareholder value.” (Source: Financial Summary For the six months ended 30 June 2019, Melrose Industries PLC revenues increased 100% to £5.7B. Net loss before extraordinary items decreased 53% to £153M. Revenues reflect Automotive segment in-crease from £896M to £2.17B, Aerospace segment increase from £713M to £1.89B, Powder Metallurgy segment increase from £254M to £574M, North America segment increase of 94% to £3.1B, Europe segment increase from £594M to £1.32B. (Source: PE Ratio: 17.52 Dividend Yield: 2:00% So there you have it. Melrose Industries (LSE: MRO) appears to be one of those stocks that’s easily over-looked by retail investors. The company has a market capitalization of 11.15B. It first floated on the AIM in 2003, and in the last 5 years the share price has rocketed a staggering 330% while the FTSE 100 has risen 8.95%. This is a growth stock and the chairman is confident they will continue to grow and make further pro-gress. However, we have to also take into consideration that there is always the risk that some of their acquisi-tions may not always go according to plan and they may have issues making the necessary improvements to the companies they purchase.  

Click here to download the full report.