Industrial investor Melrose takes new flight path as aerospace-focused group

Melrose Industries will on Wednesday announce the most significant shift in its strategy since its creation 20 years ago by telling investors that it is repositioning itself as a pure-play aerospace company.

Sky News has learnt that in a scheduled trading update to the City, Melrose will announce that it is putting its well-worn 'buy, improve, sell' approach on hold while it focuses on the performance of its remaining business.

City sources said the company was likely to commit to shareholders that it will not pursue any material acquisitions, either in or outside the aerospace sector, over the next 12 months.

One long-standing Melrose investor said they anticipated the company's management, led by chief executive Simon Peckham, would seek to create substantial value from both GKN Aerospace's engines and structures units during that period.

They also speculated that the company would consider renaming itself Melrose Aerospace, with an announcement potentially coming as soon as a capital markets day event next week.

Wednesday's trading update will follow the recent demerger of GKN's automotive division, which has since been renamed Dowlais Group and has been listed as a standalone business on the London Stock Exchange.

Following the disposal of other industrial companies in recent years, Melrose has now been left owning only the vast GKN aerospace operation it bought as part of a fractious £8bn takeover in 2018.

The company's board is said to believe that the revival of investor appetite for aviation-related stocks should prompt a material re-rating in the short-to-medium term.

On Tuesday, Melrose shares were trading at about 425p, giving the company a market capitalisation of £5.7bn and an enterprise value - which includes its debt - of £6.2bn.

One industrials sector banker said they believed that at that valuation, Melrose was likely to draw interest from both strategic and financial buyers, particularly if conditions in debt financing markets improved in the coming months.

Its strategic pivot is also likely to trigger City speculation about the future of Mr Peckham and Melrose's other long-serving executives.

Sources suggested the group's founders could elect to pursue the creation of another vehicle, which could be either publicly or privately owned, if they achieved the desired improvement in the performance of GKN Aerospace's operations.

Melrose listed on the London market in 2003 with a market value of just £13m.

Since then, it has made a string of acquisitions in unrelated areas but with the common thread of being underperforming industrial assets in need of a dedicated transformation agenda.

Among the companies it has owned have been Brush, which was part of FKI and made turbo-generators and transformers; Dynacast, a producer of components for manufacturers; and Elster, a smart metering group, which was sold to Honeywell International of the US for £3.3bn in 2015.

Melrose's 20-year history on the London stock market has not been without controversy, most notably in relation to the multimillion-pound windfalls earned by its top executives.

Supporters of the company argue, though, that returns generated for shareholders have been exceptional, with cash returns to investors exceeding £6bn since its maiden acquisition in 2005.

A Melrose spokesman declined to comment.