Melrose Industries (LSE:MRO) could not command the identical headlines as Rolls-Royce, however the FTSE 100 engineering group is quietly delivering a metamorphosis story that’s exhausting to disregard. Its newest full-year outcomes for 2024, coupled with forecasts and its personal targets, recommend this might be an organization to look at.

Earnings set to surge

For the 12 months ended 31 December 2024, Melrose reported income of £3.5m, up from £3.4m million in 2023, representing 11% like-for-like gross sales progress. In the meantime, working revenue surged to £540m, a 42% improve from 2023. Adjusted diluted earnings per share (EPS) jumped to 26.4p, a forty five% rise from 18.7p in 2023.

The numbers look much more compelling when set in opposition to consensus forecasts. Analysts anticipate EPS to succeed in 34p by 2026, which might mark an extra 29% improve from 2024’s already-strong outcome.

Such progress is underpinned by Melrose’s distinctive enterprise combine, in addition to share buybacks. The corporate generates 53% of gross sales from high-margin aftermarket providers, offering a resilient income stream even when authentic tools manufacturing (OEM) cycles soften. 

Its Engines division, which provides each civil and defence aerospace, grew gross sales by 26% in 2024 and delivered a 40% soar in working revenue, with margins increasing to a formidable 28.9%.

Lofty targets

Melrose’s five-year targets are bold however possible. Administration’s aiming for income of £5bn and working revenue north of £1.2bn by 2029, with group margins anticipated to exceed 24%. This might be a major uplift from the present 15.6%.

Free money circulation can also be set to rebound, with £600m focused, in comparison with a £74m outflow in 2024. This 2024 determine was affected by restructuring and legacy points.

Nonetheless, the expansion story isn’t with out dangers. Internet debt elevated to £1.32bn in 2024, up from £572m the earlier 12 months, largely on account of share buybacks and ongoing funding. Clearly, administration believes the corporate’s progress will outpace the price of servicing progress.

This brings the leverage ratio to 1.9 instances, throughout the firm’s goal vary however nonetheless one thing to watch as debt maturities loom in 2026. The corporate will seemingly refinance these obligations.

The underside line

Regardless of lacking some market expectations on income, I’m fairly intrigued my the inventory’s worth proposition. The corporate is at the moment buying and selling at 14 instances ahead earnings. That’s a fraction of the place its aviation peer Rolls-Royce is now buying and selling.

It’s additionally focusing on EPS progress above 20% within the years to 2029. If it may well come anyplace close to this determine, I’d recommend the corporate’s vastly undervalued. There’s additionally a modest dividend to account for. The yield at the moment sits round 1.5%, rising to 2%.

What’s extra, the typical share price goal is 32% above the price in the present day. Analysts assume the inventory ought to be buying and selling at 632p per share. I’m really questioning if it might go larger if it delivers on its targets.

It’s definitely a inventory buyers ought to take have a look at. I definitely will.