GCIRBC Capital upgrades Melrose Industries to 'outperform'
RBC Capital Markets upgraded 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".
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.
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