Company Reports

Wide-moat Melrose delivered strong results in the first half of 2024. It reported a 12% increase in overall group revenue, primarily driven by a 21% rise in the engines division, thanks to robust performance in parts repair, defense aftermarket, and the RRSP portfolio. The structures division saw 6% growth, constrained by supply chain issues and customer de-stocking.

Melrose Industries, through GKN Aerospace, is a leading engine and structure components supplier, with 70% of its revenue coming from long-term contracts in which the company is the sole-source provider. In the engine segment, the company has a well-balanced portfolio across narrow-body and wide-body aircraft, acting as a Tier 1 supplier with established positions on 90% of active engines, with risk and revenue-sharing partnerships for 74% of them. The company is a long-term partner with all engine original equipment manufacturers such as Pratt & Whitney, GE, Safran, and Rolls-Royce.

We are initiating coverage of Melrose Industries with a wide moat and fair value estimate of GBX 870 per share, backed by anticipated growth in flight hours largely fueled by leisure travel and alongside a surge in defense expenditure in response to escalating global security concerns. The valuation is further bolstered by a strategic shift in product mix toward higher-margin aftermarket revenue.

Melrose Industries, through GKN Aerospace, is a leading engine and structure components supplier, with 70% of its revenue coming from long-term contracts in which the company is the sole-source provider. In the engine segment, the company has a well-balanced portfolio across narrow-body and wide-body aircraft, acting as a Tier 1 supplier with established positions on 90% of active engines, with risk and revenue-sharing partnerships for 74% of them. The company is a long-term partner with all engine original equipment manufacturers such as Pratt & Whitney, GE, Safran, and Rolls-Royce.