Goldman reiterates 'buy' on Melrose Industries after results
Goldman Sachs reiterated its 'buy' recommendation and 230p price target on turnaround specialist Melrose Industries on Wednesday.
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The bank, which has Melrose on its Conviction List, said that following the company's 2018 results, it continues to view Melrose as offering one of the most attractive risk-reward profiles across its European capital goods coverage, with a solid platform for multi-year earnings improvement.
GS said the results were ahead of management expectations, with adjusted operating profit on a fully consolidated basis coming in slightly ahead of consensus and net debt/EBITDA slightly better than expected at 2.3x versus guidance of 2.5x.
"Annualised sales growth came in at 2% versus the prior year; Nortek was the only business not to grow (-4%), albeit it was flat excluding the well-flagged termination of a Chinese contract.
"More impressively, since being acquired in 2016, Melrose has improved Nortek's operating margins from 8.7% to 14.7%. We note that, for 2019, management sees attractive growth opportunities in Nortek's HVAC business, particularly in data centres and in range hoods where new products are being launched in 2019."
Goldman said the next catalyst is the capital markets day on 3 April, when it expects more Aerospace and Automotive divisional margin colour.
At 1255 GMT, the shares were up 1.2% to 179.20p.