Melrose keeps its engines humming as guidance holds and growth quickens

Melrose Industries reaffirmed its full-year guidance, with a recent trading statement revealing accelerating organic growth that exceeded half-year rates. Revenue increased 14% from July to October, significantly driven by a 28% surge in its Engines division, which saw original equipment revenue jump 35%, indicating easing supply chain constraints. Analyst Peel Hunt reiterated a 'buy' rating and a 790p target price, noting that this strong growth trajectory underpins their 2026 estimates and maintains positive momentum for the company, despite slightly lighter cash guidance.

Analysis

Melrose Industries PLC reaffirmed its full-year guidance, with a recent trading statement revealing a significant acceleration in organic growth. Revenue expanded by 14% in the four months from July to October, a notable increase from the 6% pace reported at the half-year stage. This robust performance indicates stronger operational momentum than initially suggested by headline figures.

The Engines division was the primary catalyst, achieving 28% growth, up from 11% at the interim mark. Crucially, original equipment revenue within Engines surged 35% over the period, suggesting a material easing of previously reported supply chain constraints. The Structures division also contributed positively, growing 5% compared to 3% earlier in the year.

Peel Hunt views this update as better than it appeared, noting that the accelerated growth trajectory strongly underpins their 2026 growth estimates of 10% for Engines and 5% for Structures. The broker maintains its 'buy' rating and a 790p target price, which represents approximately 13 times expected 2026 EBITDA, below the peer group average of 15 times and a sum-of-the-parts valuation of 830p. Momentum into 2026 remains intact, despite "light" cash guidance.

Key Decisions for Investors

• Monitor continued easing of supply chain constraints, particularly within the Engines division's original equipment segment, as this is a key driver of accelerated growth.
• Evaluate the company's free cash flow generation against the reiterated "north of £100 million" guidance, especially given Peel Hunt's lower model estimate of £88 million.
• Consider the valuation upside implied by Peel Hunt's 790p target price and the sum-of-the-parts assessment of 830p, which suggests the stock is trading at a discount to peers and intrinsic value.