Shares in Melrose fell by more than 13 per cent this morning as it flagged softer-than-expected revenue guidance for the year, despite profiting from increased defence spending.
Heightened geopolitical tensions have pushed demand for defence companies higher, and production delays mean Melrose’s parts and repair business is also seeing more activity.
However, US tariffs and supply chain issues continue to weigh on the group, leading it to expect softer revenue this year. Melrose expects 2026 revenue in the range of £3.75-3.95billion, below analysts’ expectations of £4.01billion.
Shares in Melrose were down 13.7 per cent to 551p, the FTSE 100’s biggest faller.
Melrose has flagged softer-than-expected guidance despite a strong performance in 2025
But overall, Melrose reported a strong performance last year. The aerospace giant said operating profit jumped 23 per cent to £647million in the year to 31 December, as revenues rose 8 per cent to £3.5million in the year to 31 December.
It came as the group’s free cash flow returned to positive territory at £125million, which chief executive Peter Dilnot said was ‘an inflection point’ for the group.
It expects free cash flow of £150-200million in 2026, in line with expectations, with a medium-term target of £600million by 2029.
Melrose’s engines division continued to drive performance, with sales growing 15 per cent to £1.6billion and operating profit up 27 per cent to £520million, despite tariff uncertainty weighing on the first half of the year.
It said its engine repairs business had been driven by increasing shop visits and demand for spare parts.
Meanwhile, its airframes business delivered revenue of £1.96billion driven by increased defence demand. It expects this to rise to between £2.05-2.15billion this year underpinned by global defence spending.
Melrose will return £175million through a share buyback to be completed next month, and has declared a 4.8p per share final dividend, bringing the total annual dividend to 7.2p.
Matt Dorset, defence analyst at Quilter Cheviot said: ‘On valuation, Melrose trades at around 13x 2026 EV/EBIT, below its long‑run average and relative to peers.
‘As free cash flow continues to scale, the shares look increasingly attractive on a cash‑yield basis, with Melrose set to offer the highest free cash flow yield in its peer group by 2029, assuming it delivers on its medium‑term plan.’
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