Melrose shares drop on 'challenging' sales growth in 2014 - UPDATE

5th Mar 2014 10:27

- Sales growth 'challenging' in 2014, shares fall- 2013 headline profits almost double to 226m pounds- Company 'ready and keen to buy again'Melrose saw profits almost double in 2013 but its share price fell sharply on Wednesday after the conglomerate gave a cautious outlook for the current year.The firm, whose strategy is to buy, improve and sell industrial businesses, said that while it is confident of its prospects over the medium term, sales growth "remains challenging" and it is facing a headwind from the current strength of sterling."The recovery from the financial crisis of 2008 has been slow, anaemic and patchy. Much of our growth in recent years has been from margin improvement rather than revenue growth," Melrose said.The outlook largely overshadowed the company's annual results which were boosted by a full year's contribution from Elster, the gas, electricity and water metering company acquired the previous year.Headline profit before tax totalled £226.1m in 2013, up from £117.9m in 2012 and slightly ahead of analysts' estimates. Continuing group revenues surged to £1.73bn, from £1.05bn previously. The company said that the integration of Elster has been better than expected and its performance so far has been "very encouraging". Meanwhile, the remaining FKI businesses that it has not yet sold, Bridon and Brush, also put in a "good performance" despite subdued order books.The board decided to pay a final dividend per share of 5p, lifting the full-year payout to 7.75p per share, up 2% on 2012.Chairman Christopher Miller said that is has been "an extremely busy year" for the company with the integration of Elster, as well as the disposal of five businesses acquired through the acquisition of FKI in 2008: Truth, Marelli, Crosby, Acco and Harris. These were sold during the year for a total of £950m, £600m of which was returned to shareholders last month.He said that Melrose is now "ready and keen to buy again" but is waiting for the "right opportunity to arise".However, analysts at Numis Securities said that the market's focus is already on the next acquisition and the stock's "heady" rating "appears to already be discounting the next deal".The broker downgraded its rating for Melrose from 'hold' to 'reduce', saying it sees downside risk to the current share price given that the stock is the second most expensive in the UK engineering sector."No deal today should be of little surprise given the difficulty in aligning such timings. However, competition is no doubt increasing with corporates and private equity in particular more confident and able to access funds. Melrose has always been rightly disciplined on pricing. We wait to see how this conundrum plays out," Numis said.Investec also lowered its stance on the stock from 'buy' to 'add', citing the recent "robust share-price performance".The stock was down 7.1% at 304.5p by 10:23.BC