Few takeovers in recent years have been as controversial or as bitterly fought as the £8 billion acquisition of engineering company GKN by turnaround specialist Melrose Industries (MRO). Politicians huffed and puffed about national security and asset stripping; investors contested whether GKN needed turning around; customers threatened to take away their business; a spirited defence by GKN’s board limited acceptances to 52% of shares.
Melrose has now had 18 months of ownership of the aerospace and car parts manufacturer. It says it continues to transform the GKN businesses although “some macro conditions could be more helpful”. However, figures for the four months to October 31 were merely in line with expectations. There is still some way to go before the takeover can be declared a riproaring success.
Still, Melrose reckons improvements across its various businesses “are being delivered at pace” and further shareholder value will be unlocked.
Certainly shareholders should expect better from now on. Melrose has been held back by the now resolved strike at General Motors in the US, which was responsible for a 5% fall in sales in the automotive division. Even so, the division delivered higher profits and margins compared with the same period last year.
In fact, powder metallurgy was worse affected by the strike, with sales down 13%. This division should bounce back and the acquisition of a leading 3D printer manufacturer could provide a further boost.
Aerospace grew sales by 5%, better than the predicted rate, and margins improved in this division also.
One possible worry is the level of debt. Melrose has to find cash to fund acquisitions, investment and restructuring. That said, the update was generally positive.
The shares suffered in the final months of 2018, slipping as low as 145p, but are now back to around 220p, their best since mid-September 2018. The case to buy is not overwhelming but those who have already taken the plunge have no cause to bail out.
Kingfisher Has its Work Cut Out
Another trading update from Kingfisher (KGF) from another chief executive but the message is depressingly familiar. Total sales were down 3.2%, like-for-likes by 3.7%, in the third quarter.
As usual, the French outlets of Castorama and Bricot Depot were disaster zones but problems stretch across Europe, particularly Iberia and Russia. B&Q, the do-it-yourself chain in UK and Ireland, continues to struggle in a softer market.
Once again the only bright spot was the Screwfix trade outlets in the UK. Seven new outlets were opened in the quarter and the first in Ireland is on the horizon.
Otherwise the new management team under chief executive Thierry Garnier has its work cut out. After two months in the job they must have a pretty fair idea of the scale of the task. I wish them well.
The shares slumped 7% on the day of the announcement, back below 200p, though one positive signal was that they didn’t quite touch the 188p low point of August and October in intraday trading. They were worth twice as much three years ago. Given the state of retailing they could halve again in less time. Stay well clear.
Things Will Get Better at JMAT
Perhaps I’m biased because I am a shareholder but the drop of 7% in the Johnson Matthey (JMAT) share price looked overdone to me. The trigger was an 8% fall in pre-tax profits in the half year to September 30, mainly because of one-off costs in the clean air division.
The second half should be better, and to demonstrate their confidence the board has increased the interim dividend by 5%. I have no hesitation in retaining my holding.
