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2021-11-01

Edison Investment Research Limited: Melrose Industries (MRO): Initiation - A proven, high-value creation model

Edison Investment Research Limited
Edison Investment Research Limited: Melrose Industries (MRO): Initiation - A proven, high-value creation model

01-Nov-2021 / 08:00 GMT/BST


 

London, UK, 1 November 2021

 

Melrose Industries (MRO): Initiation - A proven, high-value creation model

Melrose has a proven track record for creating shareholder value through its 'buy, improve, sell' model. Focus on financial returns and close management alignment with shareholders ensures tight discipline in the acquisition and disposal phase to combine with the key value enhancement achieved in the improvement phase of the strategy. The circularity of the model provides clarity: monies are raised to finance individual transactions with the disposal proceeds subsequently returned.

Melrose's ultimate value creation comes from the sale of its assets. Assuming GKN margin improvement of 400bp, in line with management targets of 10.5% for GKN (historical record +600bp), and 150bp expansion in the exit multiple over acquisition (historical record +250bp) translates to a discounted valuation of 226p. Note this assumes only a partial recovery in end markets (sales -15% from pre-pandemic levels), a full recovery would increase our valuation to 255p a share.

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About Edison: Edison is a leading research and investor relations consultancy, connecting listed companies to the widest pool of global investors. By focusing on the volume and quality of investors reached - across institutions, family offices, wealth managers and retail investors - Edison can create and gauge intent to purchase, even in the darkest pools of capital, and then make introductions via non-deal roadshows, events or virtual meetings.

Having been the first in-market 17 years ago, Edison now has more than 100 analysts covering every economic sector. Headquartered in London, Edison also has offices in New York, Frankfurt, Amsterdam and Tel Aviv and a presence in Athens, Johannesburg and Sydney.

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Edison is not an adviser or broker-dealer and does not provide investment advice. Edison's reports are not solicitations to buy or sell any securities.

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David Larkam +44 (0)20 3077 5700 industrials@edisongroup.com

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