This is a bad time to be in the auto and aerospace businesses, and even worse if you have a lot of debt on your balance sheet. If that weren’t enough, Melrose’s (OTC:MLSPF, MRON.LN) “Buy, Improve, Sell” philosophy means that the assets it holds at any given time are not generally operating at peak potential, as there are almost always cost and business improvement initiatives underway at the company.
Still, I’m a believer in track records, and Melrose has a good one. This is a company that has logged several wins over the years, buying businesses, improving them, and then selling them on to new owners, and I believe the current assets held by the company are by and large quite good. Melrose doesn’t really buy troubled assets - the company buys good assets that it believes are mismanaged or under-managed.
Valuing Melrose is always complicated by the model. Sure, you can model the revenue and FCF from the current collection of businesses, but the reality is that every business in the portfolio is held to be sold sooner or later, and we all know how acquisition prices can deviate from real underlying value. Still, I believe Melrose isn’t likely to be forced to sell before it wants to. The company has shown price discipline in the past, and I believe the shares are currently undervalued.
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Like A Phoenix, Melrose Is Currently On Fire, But It Will Rise From The Ashes And Take Flight
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