Melrose: H1 26 results beat consensus; FY26 guidance updated for the Garden Green incident

First-page research excerpt

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Europe Equity Research

31 July 2026

Melrose

H1 26 results beat consensus; FY26 guidance updated

for the Garden Green incident

Our take: This morning MRO has reported H1 26 EBITA and EPS that are -1%

and +4% vs. BBG median consensus. FCF of £13m is well ahead of JPMe of £-23m

(there is no meaningful consensus). Excluding the impact of the Garden Grove

(GG) incident (explained below) there is no change to FY26 guidance. However,

the GG incident means we reduce our 2026E EPS by 8% (our 2027-30E EPS is

broadly unchanged) and 2026E FCF is reduced to £99m from £176m. Until there

is clarity on the GG situation, MRO has also paused its current share buyback of

£175m (it has already spent £12m of the £175m). MRO’s share price is down 19%

YTD, significantly lagging its European Civil Aero peers, and we believe the

shares already discount the GG impact and future risks. We leave our Dec-27 PT

of 750p unchanged, which implies 58% potential return over the next 17 months.

However, in our view, the shares may be in a holding pattern until the GG situation

is more fully resolved.

Noteworthy areas – H1 26 results: Table 1 shows the H1 26 results. We would

highlight the following points. (1) Sales grew 10% at constant currency, with

Engines up 19% yoy and Airframes up 4% yoy. (2) EBITA was in line with

consensus. This is despite the GG incident impacting H1 26 sales by £16m and

EBITA by £9m. (3) FCF was better than we expected at £13m (despite MRO

repaying factoring of £15m in H1 26). (Note: MRO is not changing its factoring

policy and, on an annual basis, it still expects to increase its factoring balance

in line with its constant currency sales growth.)

FY26 guidance unchanged excluding Garden Grove incident: Assuming

an FX rate of $1.37/£1.00, MRO expects sales of £3.75-3.85bn, EBITA of

£700-750m, and FCF of £150-200m. Excluding GG, we have not changed our

group estimates, but (given the H1 26 sales trends) we have slightly increased

our estimates for Engines and slightly trimmed them for Airframes.

What was the Garden Grove incident? GG in California produces canopies

and windows for military and civil aircraft. It converts a chemical called MMA

…