![\"Businessman](\"https:\/\/www.europesays.com\/britain\/wp-content\/uploads\/2026\/04\/fdb91f20058c83fa292026a45647168f.jpeg\")
Image source: Getty Images <\/p>\n Image source: Getty Images <\/p>\n
Cast your mind back four years and\u00a0Rolls-Royce, today one of the FTSE 100\u2018s most celebrated turnaround stories, was a company in serious trouble. It was burning cash, drowning in debt \u2014 largely because of the pandemic \u2014 and its shares were slumping. Today, it carries a market-cap approaching \u00a3100bn and an operating margin close to 25%.<\/p>\n
The thing is, everyone knows Rolls-Royce. And that\u2019s probably down to the car brand they don\u2019t own.<\/p>\n
But not everyone knows\u00a0Melrose Industries\u00a0(LSE:MRO). It\u2019s a different company, same script.<\/p>\n
Melrose has spent recent years shedding automotive and other non-core divisions to emerge as a focused aerospace supplier, making advanced components and systems for all major original equipment manufacturers. These include Boeing, Airbus, GE, and Safran. That\u2019s a great list of customers.<\/p>\n
The business spans civil and defence markets. Crucially, it holds sole source positions across much of its business \u2014 around 70%.<\/p>\n
What\u2019s more, these are long-term, often exclusive supply agreements for specific parts on specific aircraft. Once embedded on a programme, Melrose is typically there for the life of that aircraft \u2014 often 25-30 years.<\/p>\n
The revenue is recurring \u2014 the switching costs are enormous, and the barriers to entry are high. It\u2019s exactly the kind of quality business with an embedded structural competitive advantage that made Rolls-Royce so rewarding for patient investors.<\/p>\n
In 2022, Melrose reported an operating loss of \u00a3246m on a margin of -8.33%. Full-year 2025 results showed operating profit of \u00a3600m and an operating margin of 16.72%. Normalised EPS hit 33.1p last year \u2014 up 70% \u2014 pointing to the company trading at 16 times earnings.<\/p>\n
The dividend\u2019s growing at 20% a year. And the 16 analysts covering the stock have a consensus price target of 693p \u2014 more than 30% above today\u2019s price of around 515p.<\/p>\n
On an earnings basis, there\u2019s cause to argue it\u2019s still undervalued. Rolls trades at more than double Melrose\u2019s forward price-to-earnings (P\/E) of just 13.2 times. The price-to-eanrings-to-growth (PEG) ratio of 0.9 is vastly discounted versus many other aerospace\/industrial stocks.<\/p>\n
Of course, there are risks and concerns. Net debt\u2019s risen to \u00a31.74bn and free cashflow\u2019s only just turning positive. The balance sheet leaves limited room for error if civil aviation demand softens or defence programme timing slips. This is a genuine risk and worth watching closely.<\/p>\n
However, the shares are down 22% from their 52-week high, caught in the broader turbulence of the year. For long-term investors, the combination of sole source positions, a transformed margin profile, and the prospect of strong earnings growth from this valuation makes it well worth considering.<\/p>\n","protected":false},"excerpt":{"rendered":"Image source: Getty Images Cast your mind back four years and\u00a0Rolls-Royce, today one of the FTSE 100\u2018s most…\n","protected":false},"author":2,"featured_media":12166,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[5766,320,5765,5764,1238,5,6],"class_list":{"0":"post-12165","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uk","8":"tag-drowning-in-debt","9":"tag-ftse-100","10":"tag-melrose-industries","11":"tag-operating-margin","12":"tag-rolls-royce","13":"tag-uk","14":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@UnitedKingdom\/116390839521177684","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/12165","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=12165"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/12165\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/12166"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=12165"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=12165"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=12165"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}