Melrose Industries PLC (LON:MRO): A Technical Rebound and Undervalued Opportunity for Institutional Investors

Melrose Industries PLC (LON:MRO), a global leader in engineered components for aerospace and defense, has faced significant volatility in recent years. Despite a 13% annual decline in its stock price through June 2025, the company now presents a compelling rebound opportunity for institutional investors. This analysis explores its technical recovery potential and undervalued sector positioning, supported by key data points and market dynamics.

Technical Recovery: A Catalyst for Institutional Interest

Melrose's stock price has displayed resilience in 2025, rebounding from a 52-week low of £4.94 (April 2024) to a June 20 closing price of 518.40p, marking a 10.18% gain over five days and a 12.64% rise month-to-date. While its year-to-date (YTD) performance remains negative (-5.89%), the recent upward momentum suggests a technical recovery is underway.

Key technical indicators include:
- Volume Surge: Trading volumes spiked to over 24 million shares on August 23, 2024, signaling institutional buying activity.
- Price Resistance: The stock approached a high of 680p in March 2025 before retreating, but recent closes near 520p suggest a new support zone forming.
- Dividend Stability: A final dividend of 4.00p (ex-div March 27, 2025) and interim dividend of 2.00p (ex-div August 8, 2024) maintain investor confidence despite earnings volatility.

Undervalued Sector Positioning: A Contrarian Play

Melrose's negative P/E ratio (-130.27 as of June 2025) reflects persistent losses, but this metric may understate its value. Compared to peers in the Specialty Industrial Machinery sector:

Company	P/E Ratio (2024)	EV/EBITDA (2024)
Melrose Industries	-130.27	N/A
The Weir Group (LSE:WEIR)	19.5	15.48 (Sector Avg)
Rolls-Royce (LSE:RR)	19.07 (Q3 2024)	16.46 (June 2024)

While Melrose's negative P/E contrasts sharply with peers like Weir Group (P/E 19.5) and Rolls-Royce (P/E 19.07), its valuation gap creates asymmetry. If Melrose can turn losses into profitability—a realistic goal given its £3.47bn revenue in 2024—its P/E could normalize, triggering a sharp upward re-rating.

The Industrials sector's EV/EBITDA multiple of 15.48 (December 2024) further supports this thesis. Melrose's potential to align with sector averages (assuming stable margins) could unlock 20–30% upside from current levels.

Risks and Considerations

• Earnings Volatility: Persistent losses (net loss of £106m in 2024) remain a concern. Institutional investors should monitor Q2 2025 results for signs of margin improvement.
• Sector Headwinds: Aerospace demand fluctuations and supply chain disruptions could pressure earnings.
• High Institutional Ownership: While 82% ownership by institutions signals stability, rapid selling could amplify volatility.

Investment Strategy for Institutions

Melrose Industries offers a high-risk, high-reward opportunity for long-term institutional investors with a 12–18 month horizon:
1. Entry Point: Accumulate positions near £500–520p, with a stop-loss below £480p.
2. Catalysts to Watch:
- Positive EBITDA margins in Q2 2025 results.
- Sector tailwinds from aerospace recovery or defense spending increases.
3. Target: A P/E ratio of 15–20 (aligned with sector peers) would value the stock at £750–800p, a 45–60% gain from current levels.

Conclusion

Melrose Industries' technical rebound and undervalued positioning relative to sector peers make it a compelling contrarian play for institutional investors. While risks persist, the combination of recent price momentum, stable dividends, and a potential earnings turnaround creates a favorable risk-reward profile. Investors should prioritize gradual accumulation and catalyst-driven exits to maximize returns while mitigating downside risks.

In a market seeking value amid volatility, Melrose's journey from loss-maker to potential growth engine could position it as a standout performer in the Industrials sector.