Melrose posts higher margins, sales on Nortek buy; shares peak

By Abhijith Ganapavaram

(Reuters) - Engineering turnaround specialist Melrose Industries Plc (MRON.L) said it saw the likelihood of improving margins at Nortek, which it acquired last year, and signalled that it could be ready to buy again this year, sending its shares to a record high.

Melrose, whose shares were the top percentage gainers on the Stoxx 600 index (.STOXX), said margins at Nortek had risen to 13.4 percent from 9.3 percent in the four months since completing the purchase of the U.S. ventilation and home security products maker.

Melrose in July agreed to buy Nortek for $2.81 billion, including debt, in a bet on the U.S. construction market.

Melrose specializes in buying companies that it can improve through investment and cost cuts with the aim of selling them at a profit later.

"It's been a great start at Nortek," Finance Director Geoffrey Martin told Reuters.

Martin said Nortek will continue outperforming and indicated that margins could go higher, but refused to give a target. Analysts said they expect Melrose to target margins above 15 percent.

The company is looking to improve Nortek "all over" through investments, Martin said, adding that he saw its unit that sells heating and air-conditioning products as having the biggest potential.

Melrose usually targets improvements in supply chains, cutting costs and stopping sales of low-margin goods.

NEXT ACQUISITION

The company said it had begun the process of looking for its next acquisition, much earlier than analysts had expected, with Martin saying they could be ready to buy this year.

Melrose is looking at acquisition opportunities in the United States and Europe, Martin said.

The company said full-year revenue more than tripled to 889.3 million pounds, primarily driven by Nortek, which gets more than 90 percent of its revenue from North America.

However, 2016 statutory loss before tax widened to 69.3 million pounds from 30.7 million pounds a year earlier, hurt by higher trading and non-trading costs.

Shares of Melrose rose as much as 14.7 percent to touch a record high of 250.50 pence, before paring some gains to trade up 13.5 percent.

($1 = 0.8145 pounds)

(Reporting by Abhijith Ganapavaram in Bengaluru; Editing by Sunil Nair)