Melrose Industries PLC (LSE:MRO, OTC:MLSPF), the aero parts group, has received a meaty price target from US bank Citi, which is looking long-term at the cash-generating potential.
In the short-term, underlying profits are nudged up by 2% after the first half though cash flow drops due to higher restructuring and LTIP-related costs.
That aside, Citi believes Melrose will be able to generate more than £500m free cash flow FCF (post interest/tax) in the mid-term, as significant cash drags fall away.
“We conclude that, even if you apply a discounted sector peer full year 2027 FCF yield (to account for higher risk), if Melrose produces ~£500m of FCF (post interest/tax) you arrive at a fair value more than £7/share.”
“That is 50% upside from current share price to our [700p] target price,” it adds.
Shares rose 0.3% to 490p.