ii view: disappointing guidance dumps Melrose shares
Raising the dividend by 20% and pursuing aggressive targets for 2029. We assess prospects for this FTSE 100 engineer.
27th February 2026 15:51
by Keith Bowman from interactive investor
Full-year results to 31 December
- Revenue up 8% to £3.59 billion
- Adjusted operating profit up 23% to £647 million
- Final dividend of 4.8p per share
- Total 2025 dividend up 20% to 7.2p per share
- Net debt of £1.41 billion, up from £1.32 billion
Guidance:
- Expects full year 2026 revenues of £3.75-3.95 billion
- Expects full year 2026 adjusted operating profit of between £700-750 million
- Planning a share buyback programme of £175 million in 2026
Chief executive Peter Dilnot said:
"Melrose delivered another strong performance in 2025. We generated £125 million of free cash flow, representing an inflection point for the Group, with substantial further increases in cash generation to come.
"We have positive momentum and are well-positioned to benefit from expected production ramp-ups and ongoing aftermarket expansion. We are therefore confident of further growth in 2026 and achieving our 2029 targets".
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ii round-up:
Aircraft component maker Melrose Industries (LSE:MRO) today detailed annual 2025 sales and profit that broadly matched City forecasts but with 2026 profit estimates shy of analyst hopes.
Demand for engine components helped sales rise 8% in 2025 to £3.59 billion. Adjusted operating profit climbed 23% to £647 million. The maker of components for planes including Airbus jets and Eurofighters expects 2026 revenues of up to £3.95 billion, driving profits as high as £750 million. Analysts had forecast profit of around £754 million.
Shares in the FTSE 100 company fell 10% in UK trading having risen by close to a tenth in 2025.
The FTSE 100 index climbed by just over a fifth last year, while Rolls-Royce Holdings (LSE:RR.) doubled in value.
Melrose operates more than 30 manufacturing plants across 12 countries. Engine component related revenues rose 15% to £1.63 billion, taking adjusted divisional profits up 27% at £520 million.
Airframe related sales grew 3% £1.96 billion, pushing adjusted operating profit for the division up 10% to £156 million.
A final dividend of 4.8p per share, payable to eligible shareholders on 5 May, takes the total 2025 dividend up 20% to 7.2p per share. A new share buyback programme for 2026 of £175 million was also announced.
Group net debt of £1.41 billion is up from £1.32 billion at the end of 2024, although with the ratio of net debt to adjusted profits at 1.8 times staying within management’s target range of 1.5-2.0 times.
Melrose reiterated goals announced last year to achieve revenues of around £5 billion by the fiscal year 2029 with adjusted profits of £1.2 billion or more.
The group’s AGM is scheduled for the 29 April.
ii view:
Started in 2003, Melrose has acquired and sold numerous engineering businesses including Dynacast, McKechnie, FKI, Elster, Nortek, and GKN. Today, its Engines and Air Frames divisions provide technology on more than 100,000 flights a day. For this latest 2025 financial year, civil aerospace generated 71% of sales with defence the balance of 29%.
For investors, the aerospace industry is historically cyclical and volatile. Supply chain issues were recently flagged by major aircraft maker Airbus. However, within management targets, group net debt rose over this latest financial year, while a price-to-net asset value above the three-year average may suggest the shares are not obviously cheap.
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On the upside, stretching sales and profit targets to 2029 continue to be pursued. Diversity of both product, underlying customer, including both defence and commercial clients, to geographical region, exists. A forecast dividend yield of around 1.3% sits above the less than 1% yields on offer at rivals Rolls-Royce and Babcock International Group (LSE:BAB), while a multi-year transformation programme is now complete giving greater management focus to growing the business.
For now, and despite ongoing risks, exposure to expected growth in air travel and European defence spending is likely to see fans of this engineering company remain supportive.
Positives:
- A track record of previous acquisitions and value enhancing sales
- Diversity of products and geographical regions
Negatives:
- Uncertain economic outlook
- Exposure to currency movements
The average rating of stock market analysts:
Buy
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