Company Reports

Melrose's shares rose 10% on Aug. 25 after its GKN Aerospace business targeted Sept. 28 to resume full manufacturing at Garden Grove, the district attorney closed its criminal investigation without charges, and the company established a claims program of up to $100 million.

Melrose Industries, through GKN Aerospace, is a leading Tier 1 supplier of engine and airframe components and systems. More than 70% of airframes content is provided on a sole-source basis. The engines business has positions across 90% of the world’s major aircraft and 19 risk- and revenue-sharing partnerships, or RRSPs, providing aftermarket entitlement on around 70% of global flying hours. Customers include Pratt & Whitney, GE Aerospace, Safran, and Rolls-Royce.

Melrose’s first-half revenue rose 10% to GBP 1.87 billion and adjusted operating profit 16% to GBP 347 million. Excluding Garden Grove, profit grew 19% and margin rose 80 basis points. Guidance excluding the incident was maintained, while the GBP 175 million buyback was paused.

Amid strong 2025 results, Melrose guided for a softer near‑term growth path. In 2025, revenue grew 8% like-for-like, driven by midteens growth in engines. Margins grew 240 basis points to 18%, and free cash flow turned positive above GBP 100 million, a key inflection after years of restructuring.

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.

Reports of the US-driven Russia-Ukraine peace deal triggered a downturn in European defense stocks, with names under our coverage down between 10%-20% since October highs.

Melrose Industries' revenue rose 6% to GBP 1.72 billion; operating profit grew 29% to GBP 310 million, with margin up 380 basis points to 18%. Engines drove 11% top-line growth with a 33.4% margin, while structures improved to 6.7% as defense offset a slower civil ramp-up.

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.

Wide-moat Melrose reported strong 2024 results with operating profit up 42% and revenue growing 11%. However, shares remain 27% below pre-earnings levels due to a lower-than-expected 2025 revenue forecast and supply chain concerns. After reviewing our assumptions, we raise our fair value estimate to GBX 800 from GBX 740 as we remain optimistic about Melrose’s strong aircraft platform positions and expected defense spending tailwinds.

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.

Wide-moat Melrose delivered GBP 540 million in operating profit, a 42% year-on-year increase, despite lower-than-expected revenue growth due to supply chain disruptions and customer destocking. Melrose has once again lowered its revenue estimates for the midterm, citing a mix of industrywide supply chain challenges, customer production rate adjustments, and specific headwinds hitting key platforms. This marks a continuation of a trend where revenue expectations have been tempered, despite strong profit growth and margin expansion. Consequently, we are placing our fair value estimate for the company under review.

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.