Morgan Advanced Materials: Can the 12% Margin Target by 2028 Be Achieved?

Morgan Advanced Materials (MCRUF) has set its sights on a bold financial target: achieving an adjusted operating profit margin of 12% by 2028, with the expectation of sustaining margins between 12% and 14% thereafter. This ambition, outlined in its recent strategic update, hinges on a combination of operational efficiency, supply chain improvements, and portfolio optimization. But is this target realistic? Let's dissect the company's strategy, historical performance, and recent moves to determine whether the 12% margin is within reach-or a stretch too far.

The 2028 Margin Target: Ambitious, But Not Impossible

Morgan's 12% margin target by 2028 represents a meaningful step up from its current performance. For the first half of 2025, the company reported an adjusted operating profit margin of 11.1%, a figure that, while strong, still leaves room for improvement. The company's revised financial framework emphasizes operational effectiveness and capital discipline, including a pause in its share buyback program after a £20 million tranche to prioritize balance sheet resilience. This shift signals a focus on long-term stability over short-term shareholder returns-a prudent move in today's volatile market.

Historically, Morgan has demonstrated resilience. Over the past five years, it has achieved an average earnings growth rate of 13.9%, outpacing the Machinery industry's 8.77%. However, margins remain a sticking point. While its return on equity (10.1%) is respectable, net margins of 2.6% suggest there's significant untapped potential in converting revenue into profit. The 12% target, therefore, is not just a number-it's a strategic imperative to align the company with industry peers and justify its premium valuation.

Portfolio Optimization: The Key to Margin Expansion

Morgan's strategy to boost margins centers on portfolio optimization through acquisitions, divestments, and partnerships. A recent example is the sale of its Molten Metals Systems (MMS) business to Vesuvius plc for £75.8 million. This divestment, which closed in October 2025, not only generated immediate cash but also streamlined operations by exiting a lower-growth segment. The MMS unit, part of Morgan's Thermal Products division, contributed £42.5 million in revenue and £5.2 million in adjusted operating profit in 2024. By shedding this underperforming asset, Morgan can redirect capital to higher-margin opportunities, such as its Semiconductor and Advanced Ceramics segments, which have shown stronger growth trajectories.

The company's business simplification program further underscores its commitment to margin expansion. Annual run-rate cost savings of £24 million in 2025 and £27 million in 2026 are already materializing from this initiative. These savings, coupled with supply chain improvements, are critical to offsetting weaker market conditions. For instance, the 9% volume decline in 2025 due to soft demand was partially mitigated by cost discipline, particularly in the Semiconductor segment. Such agility in navigating macroeconomic headwinds bodes well for the 12% margin target.

Risks and Realities: Can Morgan Deliver?

While the strategy is sound, risks persist. The global economic environment remains uncertain, with inflation and interest rates posing threats to both demand and capital allocation. Morgan's reliance on capital-intensive industries like semiconductors and aerospace also introduces volatility. A slowdown in these sectors could pressure margins, even with cost-cutting measures in place.

Moreover, the company's ROIC target of 17% to 20% is ambitious in a low-growth environment. Achieving this will require disciplined capital allocation-no small feat for a company that has historically struggled with margin compression. However, the recent MMS divestment and focus on bolt-on acquisitions suggest Morgan is learning from past missteps.

Conclusion: A Calculated Bet with Upside

Morgan Advanced Materials' 12% margin target by 2028 is achievable, but it will require execution excellence. The company's strategic focus on portfolio optimization, cost discipline, and operational efficiency provides a clear roadmap. The MMS divestment is a textbook example of how to reallocate capital to higher-growth areas, while the business simplification program is already delivering tangible savings.

That said, investors should remain cautious. The path to 12% margins is not without hurdles, and macroeconomic risks could test Morgan's resolve. For those willing to take a calculated bet, however, the company's strategic clarity and improving financial discipline make it a compelling long-term play.