We have long been fans of Melrose Industries and the attractions of the company and its aims of ‘buy, improve, and sell.’ The model it operates of an engineering buyout firm makes Melrose a quoted private equity type investment. Management have many years’ experience and success in the engineering field.

Adding to its wealth of experience is newly appointed CEO of the automotive division, Liam Butterworth, who recently stepped down as head of Delphi Technologies. Melrose, a U.K. turnaround specialist, acquired the British engineering company GKN in March in a hostile takeover. The division that Butterworth will lead is made up of GKN Driveline and GKN ePowertrain.

Interim results in September announced that trading was in line with expectations. The dividend was increased by 11% to 1.55 pence. Management reiterated that GKN provides an outstanding opportunity and that significant progress has been made with its plans for the business.

The focus has now moved to the acquisition of GKN and management’s plans to improve the business and potentially sell parts. Analysts believe GKN will be a longer-term turnaround story and the company will see the rewards in the long-term should it pull off a successful turnaround of GKN.

The shares rewarded investors who followed our ‘buy’ recommendation in the past, but have fallen off sharply in the recent market sell-off. In the current climate we would suggest the risk is medium to high and would favour drip-feeding into the shares for the chance of further growth and cash returns over the longer-term.

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