Melrose Industries PLC (LON:MRO) saw its shares soar to a record high today after the engineering turnaround specialist signalled that it could be ready to buy again this year as it reported strong 2016 revenues boosted by improving margins at US firm Nortek, which it acquired last year.
In early afternoon trading, Melrose shares were up almost 14%, or 30p to 248.5p.
The bullish comments came as the group reported that its revenues more than tripled to £889.3mln in the full-year to December 31 2016, primarily driven by ventilation and home security products maker Nortek - which gets more than 90% of its revenue from North America.
Melrose said margins at Nortek had risen to 13.4% from 9.3% in the four months since completing the $2.81bn purchase in July last year.
However, the firm’s statutory 2016 pre-tax loss widened to £69.3mln, up from £30.7mln a year earlier, hurt by higher trading and non-trading costs.
Next up …
Melrose specialises in buying companies that it can improve through investment and cost cuts with the aim of selling them later at a profit.
The group revealed it had begun the process of looking for its next acquisition, much earlier than analysts had expected.
In a note to clients, Peel Hunt analysts Harry Philips said: “Not the most meaningful set of results given that Nortek is in for just four months.
“However, operating profit of £104.1m beat our estimate of £84m and the confidence is shown in the 2.2p dividend against our 2p.”
He added: “Net debt is much better than expected at £541.5m compared to our £652.3m despite the FX headwind and the company is saying that the future margin improvement possibilities for Nortek are better than originally – the number hitherto was 15%. This is a big positive.
“In addition, Melrose has started to look for the next acquisition. Classic Melrose – we remain Buyers with a 240p price target.”