Melrose shares surge as GKN Aerospace proprietor shrugs off provide chain woes

Melrose Industries shares were the top blue-chip performer on Monday after the company reaffirmed annual guidance despite industry-wide supply chain issues. 

The FTSE 100 owner of GSK Aerospace said it still expects to earn between £550million and £570million in adjusted operating profits this year, followed by £700million in 2025. 

Aircraft giants Boeing and Airbus have been plagued by parts shortages and delayed deliveries, partially driven by struggles satisfying the rebound in air travel from the Covid-19 pandemic.

Boeing’s problems have been further exacerbated by safety issues with its 737 MAX aircraft and recent strike action by 33,000 machinists in the US.

Melrose’s structures business saw turnover rise by just 1 per cent year-on-year in the four months ending October due to these problems, as well as customer destocking and the rollback of non-core work.

However, strong demand from the defence industry boosted revenues at its engines division by almost a third over the same period.

Jump: Melrose Industries shares were the top blue-chip performer on Monday after the company reaffirmed its annual profit outlook

Following this update, Melrose Industries shares jumped 6.9 per cent to 523.4p by late Monday afternoon, although they have shrunk by around 6 per cent so far this year.

Peter Dilnot, chief executive of Melrose, said the firm’s outlook ‘reflects the strength of our businesses and the balanced position we have with our aftermarket offsetting original equipment headwinds’.

He added: ‘As we move into 2025, we enter a period of significant and sustained growth in our cash flow for many years ahead.’

Melrose anticipates its cash flow rising ‘significantly’ next year and ‘materially beyond’, thanks partly to cash generation from its risk and revenue-sharing partnerships. 

It also said cash flow would benefit from its restructuring programmes and the resolution of problems concerning aircraft engines made by Pratt & Whitney.

Airlines, including Wizz Air, JetBlue and IndiGo, have been forced to ground aircraft due to aerospace manufacturer Pratt & Whitney recalling thousands of its geared turbofan engines amid concerns over contaminated metal parts.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: ‘Supply chain issues have been a challenge for the whole industry and the problem’s likely to persist for some time.

‘Melrose is pulling other levers to streamline operations and offset this impact, though. 

‘The ongoing restructuring programme is nearly complete and should result in a significantly lower drag on its cash resources in the new year.’