Melrose encouraged despite worsening in FX rates - UPDATE

13th May 2014 07:08

- Significant and consistent revenue growth 'hard to achieve'.- Currency headwinds increase- Order intake up three per cent- Results to be second half-weightedManufacturing conglomerate Melrose said trading in the first quarter was in line with expectations but gave a cautious outlook, saying that significant and consistent revenue growth remains 'hard to achieve'.The company also warned that currency headwinds have worsened since its last update in March and are likely to have a bigger impact on its bottom line this year.Order intake since January 1st has risen 3% on last year, Melrose said on Tuesday. Its largest businesses, metering division Elster Gas and turbo-generator maker Brush, both are said to have "good visibility" with order books equivalent to four and six months, respectively. However, given a slower start than last year, reflecting the rate of order intake in the second half of 2013, Melrose said that the order book suggests a larger weighting towards the second half.Board encouraged by signs of improvementNevertheless, the board said it was still "confident of meeting expectations for the full year"."The macro environment still makes significant and consistent revenue growth hard to achieve but the improvement and investment opportunities continuing to arise in the Melrose businesses are encouraging," the company said."The board is keen to find a suitable and value enhancing acquisition and will proceed when a target is found but will, as ever, remain patient until that happens."As for foreign exchange, Melrose had predicted in its annual report that currency rates at the time were to have a 5% adverse impact on profit if they persisted throughout the whole year. "However exchange rates have deteriorated a little further and were the current rates to continue for the remainder of the year, this would impact performance by a further circa 1%."Investec upgrades to 'buy' from 'add'Commenting on the announcement Investec analyst Chris Dyett told clients: "[...] there are encouraging signs - in current trading or forward orders - in many of the key businesses. "[...] Melrose continues to validate its 'Buy-Improve-Sell' strategy and we expect further progress in profits in continuing businesses."Given the above and the recent underperformance in the stock the broker raised its recommendation on the same to 'buy' from 'add'. BC