Melrose Industries PLC (LSE:MRO, OTC:MLSPF) has been busy on the PR front in recent months highlighting the long-term cash flow benefits of its risk and revenue sharing partnerships (RRSP), which sees aircraft engine makers paid based on flight times.
Broker Citi estimates the aero engine and parts group’s free cash flow could now sit in the region of £450 million to £550 million come 2028 against a consensus for £320 million to £420 million.
This would give a valuation of £6 to £8 for the shares, Citi added, against 494p today.
Citi is also bullish on the structures business following a site visit to where Melrose makes Airbus A350 wings, which the bank says is an undervalued asset.
In the short-term, next week’s third-quarter update will more likely focus on the supply issues that prompted it to trim revenue guidance for 2025 by £200 million.
Airlines have been complaining about the issue of getting spares and maintenance delays from other engineers such as Rolls-Royce.
How Melrose has been affected will be something to note.
Guidance currently is for 2024 revenue of between £3.6-3.75 billion and underlying profit [adjusted EBITDA] of £710-730 million with 2025 revenue of £3.8 billion and profit of £870 million.