Interactive Investor

Big movers: Rolls-Royce, Melrose, Pets at Home, Synthomer, CVS

Rolls-Royce can do no wrong and now events elsewhere in the sector are providing a boost. But it’s not all good news, with some significant losses suffered by these small and mid-cap shares.

7th September 2023 13:21

by Graeme Evans from interactive investor

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Rolls-Royce factory 600

Rolls-Royce Holdings (LSE:RR.) shares enjoyed fresh support today after GKN Aerospace owner Melrose Industries (LSE:MRO) upgraded its profits guidance amid “excellent progress” for its engines arm.

The read-across from the interim results of FTSE 100-listed Melrose helped Rolls shares to rally 7.8p to 222.5p, a level that compared with 152p just over a month ago.

Melrose jumped 29.4p to 538.4p and is now more than 85% higher this year as it reaps the benefit of April’s demerger of GKN’s automotive and powder metallurgy operations into a new FTSE 250-listed company called Dowlais Group (LSE:DWL).

The disposal left Melrose as a manufacturer of airframe and engine structures and electrical interconnection systems across civil and defence aerospace platforms.

Melrose floated on AIM in 2003 and made its first acquisition two years later. Since then, it has created significant shareholder value through its 'Buy, Improve, Sell' strategy, leading to FTSE 100 status by 2012.

One of the driving forces behind the success has been co-founder Simon Peckham, who chose today’s results to announce his intention to stand down as chief executive. He will be replaced next year by chief operating officer Peter Dilnot.

Peckham said: “Melrose shareholders own a truly special business, with rapidly increasing profits, exceptionally strong long-term cash flows and a disciplined shareholder-focused approach to capital.”

He backed up his comments by upgrading guidance for 2023 profits by 8% and bringing forward plans for a share buyback programme that will now start next month.

The moves follow half-year figures showing 19% growth in aerospace revenues to £1.63 billion and adjusted operating profit of £175 million, more than 2.5 times the year before.

Engines aftermarket growth of 46% was driven by a recovery in flying hours while the ramp-up of civil aerospace activity helped the Structures side of the business return to profit.

Adjusted earnings in aerospace are forecast to be between £525 million and £535 million this year, but Peckham believes the business is very capable of eventually producing over £1 billion and “providing excellent returns for shareholders”.

The strong performances by shares in Melrose and Rolls were one of today’s few highlights in a lacklustre session for the FTSE 100 index.

In the mid-cap FTSE 250, shares in Pets at Home Group (LSE:PETS) were hit by a wave of selling after the Competition and Markets Authority launched a review of the £2 billion vet services sector over concerns that prices have risen faster than inflation.

The watchdog plans to hold a consultation before issuing an update on its progress in the early part of next year, meaning a period of uncertainty for Pets at Home and AIM-listed vet practices business CVS Group (LSE:CVSG).

Pets at Home has built an estate of 445 in-store or standalone veterinary practices, providing access to health checks and vaccinations through to digital x-rays and operating theatres. These practices are now delivering over £10 million in consumer revenues every week, leading to Vet division profits rising to 18.3% to £50.9 million.

Shares in CVS, which has 500 practices across four countries and was last night worth £1.5 billion, slumped 607p to 1479p, while Pets at Home retreated 29.8p to 348.8p.

The biggest fall in the FTSE 250 was by polymers firm Synthomer (LSE:SYNT) after it launched a six-for-one rights issue to raise £276 million towards cutting its debt burden.

Synthomer, which was known as Yule Catto until 2012, has endured a tough time due to a prolonged period of industry de-stocking after the exceptional period of demand for medical gloves during the Covid-19 pandemic.

In today’s interim results, Synthomer said it did not anticipate a material recovery in customer demand before the end of the current year but that £20 million of self-help measures should mean sequential progress relative to the first half.

Taking into account the impact of a capital reorganisation, the underwritten rights issue price of 197p is being offered at a 42.5% discount to the theoretical ex-rights price.

Other big fallers in the FTSE 250 included Harbour Energy (LSE:HBR), with the North Sea oil and production firm down 20.3p to 233.8p after broker Peel Hunt removed its “add” recommendation pending clarity on potential M&A-led growth

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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