When it comes to filling a Stocks and Shares ISA, one big-cap company in the FTSE 100 index looks appealing.
Melrose Industries (LSE: MRO) released an upbeat trading statement earlier today, 16 November.
The company said it experienced strong growth and higher profit margins in the four months to 31 October.
The directors uttered those magic words, “trading ahead of expectations”. And they upgraded profit guidance for the full 2023 trading year.
Focused on aerospace
That’s just what investors want to see from any business. Although at 533p, the share price didn’t move much on the day. But that could be because positive expectations were already in place after September’s half-year report.
These days, Melrose is an aerospace business. The directors said higher aftermarket demand and pricing drove the margin gains along with operational improvements.
My assumption is that the business is in good hands with the current management team. The company used to buy, improve and sell businesses. So, it has form when it comes to getting the best out of operations.
The directors declared a change in strategy in the Autumn. The statement of intent was, “Melrose is now a long-term aerospace group with exceptional organic growth prospects”. With the new strategic direction, the chief executive and chief financial officer (CFO) declared their intention to step down from their roles on 7 March 2024.
The chief operating officer, Peter Dilnot, will take the top job. And Matthew Gregory will take the finance role. He was previously CFO of GKN Aerospace. Melrose Industries acquired GKN in 2018.
The moves look set to deliver good management continuity from people steeped in the culture of the organisation. On top of that, change at the top of a business is often a good thing. It can bring new determination and ideas to help drive operations forward.
Strong progress expected ahead
Soon-to-retire chief executive Simon Peckham said: “It is a pleasure to hand over Melrose so well positioned for the future.” He thinks 2024 will be another year of robust progress under the new leadership.
City analysts agree. They’ve pencilled in increases in excess of 50% for earnings and shareholder dividends. Set against those expectations, the forward-looking earnings multiple is around 21. And the anticipated yield is around 1.3%.
That’s quite a full-looking valuation and it adds some risk for shareholders. The stock has risen around 97% over the past year, reflecting a dramatic recovery in earnings.
Part of that move could have occurred because Melrose operates in both the defence and civil aerospace sub-sectors. Investors have been tuned in to the theme of defence for some time and buying up related stocks.
If the defence theme falls back out of favour in the future, Melrose could suffer from a valuation derating taking the share price lower.
Nevertheless, on balance, the business is trading and growing well and looks worth further research and consideration for a diversified Stocks and Shares ISA.