Melrose Industries Share Discussion Threads

[gettingrichslow] 14/11/2018 09:05

B+, back from Frankfurt last night, day off today so catching up on what's going on now. Thanks for the information flow. Looks like the MRO team are starting to get to grips with GKN now. Like you, I'm looking at a medium term horizon, might take 3-5 years but if they pull it off there could be big returns. I'm confident they will deliver but it's not going to be quick - it's the oil tanker scenario! Elsewhere, volatility in markets has got to be good for PLUS but not being reflected in share price yet - I'd buy more but already up to my eyeballs in them.

[brexitplus] 14/11/2018 09:00

Off piste a little.

Interesting article on Rolls Royce about its woes with engines including Airbus and other customer unhappiness, restructuring including 4600 job losses, etc, which concludes with

““The story with Rolls-Royce has always been, ‘we are just getting over the big investment and will then make money’. The question is, when will they start making money?””

I mention this because GKN supplies both RR and Airbus.

RR down again today, hovering around 800p, it’s lowest for quite a while.

[brexitplus] 14/11/2018 08:47

Peel Hunt yesterday and Deutsche Bank today have reiterated BUY for Melrose.

[brexitplus] 14/11/2018 07:14

From the Times

“Melrose Industries has partially reversed the 40 per cent slump in its share price since its hostile takeover of GKN by telling investors that all is well in its aerospace and automotive businesses.

With chatter in the City suggesting problems since the acquisition, the FTSE 100 industrial group said trading and cash generation were in line with expectations, and there were “outstanding opportunities” to improve GKN’s businesses for the benefits of Melrose investors.

Shares in Melrose climbed 7 per cent, or 12p, to 177p. In recent weeks the stock had fallen to a low of 149p, compared with 248p at the time of its cash-and-shares takeover of GKN in March.

Melrose is an £8.2 billion conglomerate with broad industrial interests in the UK and US that was catapulted into the blue-chip index after its acquisition of GKN.

Melrose said yesterday that in the four months to the end of October revenues at its GKN aerospace division, whose main British unit is at Filton near Bristol, rose by 6 per cent. That included profit margin improvement in the US, where the emergence of an accounting black hole 12 months ago set in train the GKN takeover.

The GKN automotive division, whose UK interests are centred on its Driveline business in Birmingham, reported flat revenues in a sector where sales and production have plunged, including at its main British customer Jaguar Land Rover.

Michael Blogg, analyst at Investec, the broker, said: “Melrose management remains confident in the potential for outstanding value creation. The market feared worse.” Investec is forecasting pre-tax profits of nearly £600 million on revenues of nearly £9 billion.”

[gettingrichslow] 13/11/2018 22:33

Losos, did your four legged friend enjoy the walk? I used to have an English Springer Spaniel when I was a young boy - she had been mistreated as a puppy and didn't get on with men with beards!

[brexitplus] 13/11/2018 22:16

FURTHER ON THE LOGISTIC TIE-UP

GKN Powder Metallurgy, a leading innovation development partner of the manufacturing industry, today announced a partnership with PostNord AB, the leading supplier of communication and logistic solutions to, from and within the Nordic region.

The partnership empowers global manufacturers to optimize their part supply chain with streamlined logistics that make it easy and fast to get parts where they need to go in the Nordic region.

“We’re joining forces with PostNord AB because we see an opportunity to improve the manufacturing supply chain, particularly in the Nordic region,” stated Peter Oberparleiter, CEO of GKN Powder Metallurgy. “This partnership will offer an incredible benefit to our customers by reducing part turnaround by nearly two business days which is critical for the customers PostNord serves.

“Our metal 3D printing technology is disrupting the traditional manufacturing industry by greatly reducing manufacturing lead-times with the capability of producing more complex products. Collaborating with PostNord AB bridges the logistics gap we see in the marketplace and ensures that printed parts get to manufacturers efficiently and on time. That is the first step before establishing additive manufacturing linked to the GKN Powder Metallurgy print network.”

“Metal 3D printing offers tangible benefits to manufacturers who implement the technology, with significant bottom-line benefits,” added Ylva Ekborn, CEO PostNord Strålfors Group. “This collaboration only scratches the surface of what’s possible as manufacturers explore new ways to capitalize on advancements in technology and new logistics strategies to gain a competitive edge. Furthermore, this shows PostNord can be a supplier of 3D production in a wide range of materials, from plastic to metal, throughout the Nordic region.”

[meanwhile] 13/11/2018 19:51

What's your own view, Minerve?

[gettingrichslow] 13/11/2018 19:25

It's reasonable that they have to work extremely hard to start accruing LTIP especially given the scale of rewards possible. It's entirely possible they'll get no LTIP at all. I've had no payment at all in 3 of the last 10 years despite hitting personal targets it has been clawed back through missed corporate targets. But then mine wasn't on quite the same scale as MRO directors!

[brexitplus] 13/11/2018 19:09

Yes, useful.

I am looking further than 2019. As many of my postings show, GKN in the three divisions is moving increasingly into China and Asia, electric and autonomous vehicles, repair and servicing, and replacement parts which is eminently sensible. For example, where car sales are falling, as with diesel, the market for spares increases. And China is looking to move to electric vehicles of all types very quickly, while Additive Manufacture is the way forward, particularly with spares since large holdings in stock are not required. Also note Driveline is now split into Driveline, ePowertrain and Formula E showing the strategic thinking.

I hope Powder Metallurgy is not sold too quickly, although the technology is already in Aerospace and Driveline.

So I am looking to 2021-22 when I think GKN will be very well placed.

Of course, I could be wrong.

[meanwhile] 13/11/2018 18:45

Thanks, Minerve.

I didn't understand the first 2 at all but the 3rd from Stifel provides more encouragement.
£3 by Christmas.

[minerve] 13/11/2018 17:29

Hope that helps. Good luck. ;)

[minerve] 13/11/2018 17:28

Stifel:

Melrose has issued a brief but reassuring Q3 trading update. Few numbers are provided in the release but the message is clear: a strong performance at Aerospace (and, to a lesser extent Powder Met) has offset a softer period at Auto, as the group navigates turbulence in that market - although even Auto is not as bad as some may have feared. Auto revenues are flat YoY in Q3, through the major WLTP disruption to the EU end market, and a soft period in China. Overall group full year expectations appear unchanged, and we believe that 2019 numbers also still look realistic, albeit with the mix of earnings again shifted (higher aero offsetting lower auto). Finally, we are encouraged by the robust performance at Powder Met (9% growth and increased margins): this not only helps the bottom line, but also supports potential disposal values. So while Auto is undoubtedly (if unsurprisingly) weak and Norkek looks mixed, the group has managed to make better than expected progress elsewhere, and looks set to meet FY consensus expectations as a result. That should provide some relief, in our view. Retain Buy.

[minerve] 13/11/2018 17:28

There's more:

The shares trade on ~11x FY19E PER and EV/EBIT. We continue to find it an interesting reference point that:

· The shares need to rise by ~45% before management begin to accrue an LTIP (the LTIP represented 90% of 2013-17 comp); and

· Management's target of doubling of GKN equity in five years implies ~100% upside potential from current levels.

[minerve] 13/11/2018 17:27

Here you go MEANWHILE. Snippets from FT Market's Live:

Barclays


Melrose has de-rated 26% since the H1 update on 6 September in spite of upgrades to TR consensus EPS of 8% and the FTSE 100 only down 4%. We put this down to growing concern over leverage (2.5x Net Debt to EBITDA at FY18E vs. a 3.5x covenant) due to the company’s exposure to what has been viewed as a deteriorating autos market. The bear thesis was that: a roll-over of the autos cycle would severely impact the EBIT of the Automotive and Powder Met divisions (Powder Met has ~75% exposure to the autos industry) which represent 49% of our group EBIT in FY19E; and that the company would not be able to de-lever by disposals at attractive multiples as Powder Met would be weighed down by the autos market and Nortek would be weighed down by tariff uncertainty.

[meanwhile] 13/11/2018 17:22

I must say the trading statement and Chairman's comments are very encouraging, particularly for the continued improvement at Powder Metallurgy, which I think they plan to sell off quite quickly. Nortek less encouraging, but apparently stable.

If this leads to a substantial recovery in the price, with a return of the good sentiment some posters seek, I may restart issuing the stuffed wallet photos that I know many of you admired.

I now await the comments of Minerve, to add some balance.

[brexitplus] 13/11/2018 16:58

Hi Getting

The update wasn’t signalled. I look at the 7am RNSs every day (sad I know) and picked it up.

Re MW, I doubt it.

[gettingrichslow] 13/11/2018 16:06

Been in Frankfurt since last night and didn't even realise there was an update today so thanks B+, as Losos rightly says it is a useful service you provide. Market likes the news too. Even Meanwhile might cheer up soon!

[brexitplus] 13/11/2018 13:08

Hi Losos

Fun was lunch at a good restaurant in Bristol with a very lively 90 year old uncle of my wife’s.

Happy to keep you up to date. The info I post comes from a number of sources. In a previous life my team was responsible for keeping the Board up to date with developments in our markets and beyond. Old habits die hard.

[losos] 13/11/2018 12:50

Yes thanks B+ for those news snippets above, I repeat I do find it easier to just log in here rather than trawl the Daily Telegraph and MRO / GKN web sites.

So you've been off 'having fun' dare we ask haha.

I myself will be off out in minute with my four legged companion, don't know who we will see, but sometimes I find it a bonus if we don't see anyone haha Present company excepted of course :-)

MRO showing over 5% up right now, can't be bad :-)

[yertiz] 13/11/2018 12:09

Ha ha ha....touche, B+.

[brexitplus] 13/11/2018 10:41

Oh, why can’t we all just get along.

[brexitplus] 13/11/2018 09:47

Hi Yertiz

Yes, I agree. Long way to go but heading in the right direction. Will keep you and Losos informed

I’m looking forward to seeing the Burford presentation later. Couldn’t catch it yesterday. Was out having fun!!!

[yertiz] 13/11/2018 09:39

Nice solid trading statement. Plenty of potential to be realised from all divisions and the future looks highly promising. Particularly like the fact Powder Metallurgy is making such good progress and Automotive now have a leader who will get the best from the division.
Market seems happy with it all too. Thanks for the posts above, B+, they make for pleasant reading!

[brexitplus] 13/11/2018 09:10

Interesting article on the GKN Metallurgy website

“HOW THE START-UP RETROMOTION LEVERAGES THE POWER OF 3D PRINTING FOR THE AUTOMOTIVE AFTERMARKET”