Engineer Melrose shares surge 8{d758473eadf0b692d331aa823300cffd0ef21fd1fd535177f3429dd328b70b5d} as chief says it’s time for “more greed, less fear” with Covid impact easing

The boss of engineering giant Melrose today called for “less negativity and more positivity” among investors as the aerospace to automotive group reported sales came in at the top end of expectations over summer.

While chief executive Simon Peckham admitted its aerospace business was “basically going nowhere” until travel restrictions were lifted, sales of parts and components into the car industry had bounced back strongly, particularly in North America and China.

Citing the adage that market sentiment is about the balance of greed and fear, he said: “We are trying to say to the market we should give up a little on the fear and get a little bit more of the greed.”

He said: “North America is starting to see a strong recovery. The North American consumers are buying cars again. And China is ahead of last year.

“I don’t have a crystal ball, but at the moment it is going alright.”

Shares in the company leaped 8{d758473eadf0b692d331aa823300cffd0ef21fd1fd535177f3429dd328b70b5d} and more after it reported trading over the summer months “at the higher end of the board’s expectations”, with both automotive and its Nortek heating, ventilation and air conditioning business performing well.

Cash generation had been strong in the six months to 30 June, with net debt down £93 million and new banking facilities easing fears of a squeeze.

A big hit for Nortek – which Melrose bought for £2.2 billion in 2016 – has been an invention called Statepoint that cools the massive datacentres used by tech giants such as Facebook. Statepoint uses water rather than air to keep the computers cool in a way that uses far less energy and water.

Melrose had tried to sell Nortek last year but pulled it and today signalled it would go back on the blocks in the first quarter of next year. Analysts have pencilled in a potential sale value of $3 billion for the division.

Aerospace had seen “no signs of improvement” and fell 18{d758473eadf0b692d331aa823300cffd0ef21fd1fd535177f3429dd328b70b5d} in the first half of the year, Peckham said, adding: “Until our governments let us travel again, that’s not going to change.

“Quarantines are effectively preventing people travelling. So BA can’t fly its planes, which means leasing companies aren’t buying planes.”

He said defence aerospace sales were up around 10{d758473eadf0b692d331aa823300cffd0ef21fd1fd535177f3429dd328b70b5d} as governments had upped spending in an effort to support their aerospace industries, “But I suspect that will be short term as governments wake up and realise they don’t have the money.”

Melrose is in the middle of consulting over a major redundancy programme in aerospace, although Peckham said that did not include many jobs in the UK.

The company has identified more savings than previously expected to drive profit margins up even if revenues fall.

Operating profit plunged from £541 million to £56 million as revenues fell from £5.9 billion to £4.4 billion.

There will not be a dividend.

Analysts at JPMorgan said it was notable that there was no new bad news in the announcement, adding: “In this most challenging of years, momentum is turning.”

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