(Bloomberg) -- A jet-engine business described by Melrose Industries Plc as a “cash mountain” is actually worth about half the estimate by the UK aerospace engineer’s management, according to analysts at UBS Group AG.
In its Aug. 1 half-year results presentation, London-based Melrose said its risk and revenue sharing partnership — or RRSP — had a net present value of around £5.7 billion ($7.5 billion). However, UBS analysts including Ian Douglas-Pennant said Friday that they’d cross-checked the estimate and found the portfolio to be worth only £2.8 billion.
“We stick 100% with what we’ve reported to the financial community,” a spokesperson for Melrose said in response to questions from Bloomberg. “We have been consistent about the quantum and development in terms of timing for the last three years and fully transparent as to the calculation methodology, with our assessment based on industry-recognized forecasts.”
Melrose shares dropped as much as 8.6% as UBS cut its recommendation on the stock to sell from buy. The decline extended a year-to-date slump to about 17%, after an underwhelming sales forecast from the company when it reported three weeks ago.
Melrose’s RRSP business includes collaborations on engines such as Rolls-Royce Holdings Plc’s Trent XWB-84k, General Electric Co.’s GEnx and Pratt & Whitney’s GTF 24/30k.
UBS said its estimate is lower than management’s due to differing cash-flow estimates, discount-rate assumptions and timing effects. The bank’s valuation of the portfolio is also below the £3.9-billion figure implied by current market pricing, they added.
The company had a market capitalization of about £6.2 billion as of midday on Friday.
(Adds response from Melrose in third paragraph, updates shares.)
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