Melrose Industries Reports Strong 2024 Performance, Sets Ambitious Five-Year Targets
Why we think this is neutral
While Melrose Industries delivered strong financial performance in 2024, with adjusted operating profit up 38% and adjusted diluted EPS up 45%, there are several factors that temper the overall sentiment. The company faces persistent industry-wide supply chain issues and challenges in the Structures segment due to OEM production constraints. Despite revenue growth and margin improvements, the statutory results show an operating loss and increased net debt. The positive outlook and ambitious five-year targets are encouraging, but they must be balanced against the current market challenges and execution risks. The company's position near its 52-week high share price suggests that much of the good news may already be priced in.
Key Points
- Adjusted operating profit up 38% to £566 million
- Adjusted diluted EPS up 45% to 26.4p
- Revenue grew 6% to £3,468 million, like-for-like sales up 11%
- Engines division saw strong growth of 26%
- Statutory operating loss of £4 million
- Net debt increased to £1,321 million
- Industry-wide supply chain challenges persist
- New five-year targets set, including high single-digit revenue CAGR
- Targeting >20% adjusted diluted EPS CAGR from 2024 to 2029
- Banking covenant leverage at 2.1x, comfortably below covenant test
Summary
Melrose Industries reported strong adjusted financial performance for 2024, with adjusted operating profit up 38% to £566 million and adjusted diluted EPS up 45% to 26.4p. Revenue grew 6% to £3,468 million, with like-for-like sales up 11%. The company saw particularly strong growth in its Engines division, up 26%. However, the company also reported a statutory operating loss of £4 million and an increase in net debt to £1,321 million. Melrose faces ongoing industry-wide supply chain challenges, particularly affecting its Structures segment. Looking ahead, the company has set ambitious five-year targets, including high single-digit revenue CAGR and over 20% adjusted diluted EPS CAGR from 2024 to 2029. Broker targets remain generally positive, with JP Morgan Cazenove maintaining an 'Overweight' rating and an 850p price target.