Melrose Industries Fundamentals ‘Remain Positive’

The fundamentals remain positive for the aerospace sector and Melrose Industries (LON: MRO), according to a recent note from research firm Edison.

The firm noted that lengthy order books at Airbus and Boeing and rising post-pandemic passenger flying hours are driving strong growth in Melrose's aftermarket business, which saw a 32% increase during the July to October period in 2024.

The Engines division grew by 17%, although supply chain issues affected original equipment (OE) deliveries, limiting the Structures division's growth to 1%.

While external factors such as currency fluctuations and interest rate dynamics have led to slight downward revisions in forecasts, Edison believes the adjustments should not overshadow the company's solid underlying dynamics.

“Management's outlook for the full year was unchanged,” Edison notes. “The positive state of the aerospace markets is also unchanged and, arguably, the resolution of the industrial action at Boeing should assist production schedules.”

Edison adjusted its FY24 projections for MRO to reflect a stronger US dollar and higher-than-expected interest rates.

Profit before tax (PBT) is now forecast at £432 million (-4.5% compared to the previous forecast), with earnings per share (EPS) at 25.9p (-3.1%) and dividends per share (DPS) at 6.5p (-3.1%). For FY25, PBT is projected at £554 million (-1.2%), with EPS at 34.3p (-1.2%) and DPS at 7.6p (-18.0%).

Despite the adjustments, Edison's target of 654p per share remains unchanged, supported by Melrose's anticipated £22 billion cash generation from risk and revenue-sharing partnerships.

“Our adjustment to estimates for external factors, such as FX movements, should not detract investors from focusing on the underlying positive dynamics of the business,” concluded Edison.