Shares in aerospace equipment and engine maker Melrose (MRO) dropped 14% after the firm’s FY26 outlook undershot forecasts. The fall wiped out the stock’s previous gain of 9% year-to-date in one blow.
| Share price: 546p (-14.7%) | PE: 22.5x |
| Market cap: £7bn | Yield: 1.1% |
Below forecasts
The FTSE 100 company posted in-line FY25 results, with revenue of £3.59 billion and adjusted operating profit of £647 million. On a LFL basis, revenue was up 8% while profit was up 23% driven by increased Engine and Defence demand.
‘Melrose delivered another strong performance in 2025’, commented CEO Peter Dilnot. ‘We have positive momentum and are well-positioned to benefit from expected production ramp-ups and ongoing aftermarket expansion.’
Dilnot also said the firm was confident of further growth in FY26 and of achieving its 2029 targets. However, revenue guidance of £3.75 billion to £3.95 billion was below the £4 billion Stockopedia consensus.
Operating profit guidance of £700 million to £750 million was also below the consensus, which is around £756 million. The firm also said its guidance depended on ‘variable consideration’ of up to £380 million depending on build rates across engine programmes.
Management has done a good job of transforming Melrose in recent years to put it on a growth footing. Unfortunately, the consensus had got a bit ahead of itself so a correction in the share price was due.
With a 20% increase in the dividend and a £175 million buyback, the firm clearly expects positive momentum to continue. Growth in Engine and Defence orders is more or less underwritten by new multi-year contracts on the Typhoon and C-130.
The firm has also signed a deal with Anduril for the development of next-generation UAVs (uncrewed aerial vehicles). As the war in Ukraine has shown, UAVs or drones represent a new front for both sides in a conflict.
Read the press release here: https://www.melroseplc.net/investors/
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