The specialist materials group has opened formal talks with interested parties about one of its divisions, as it guided 2026 profit towards the top of forecasts.

Morgan Advanced Materials (LSE:MGAM) has moved its review of the Thermal Products division a step forward while also raising its sights for the current year. In a trading update on 5 November, the group said several potential buyers had expressed interest in the Business and that it was beginning formal engagement with them. A range of Options is under consideration, including a possible disposal, and the company stressed that no decision has been made.

The announcement came with a brighter trading message. Group sales rose 4.9% on an organic, constant-currency basis in the nine months to 30 September, a figure that excludes an £8.9m phasing benefit from a take-or-pay contract in the semiconductor business. Aerospace and energy markets grew firmly, while industrial end-markets were described as resilient.

Morgan (LSE:MGAM) now expects adjusted operating profit for 2026 to be around the upper end of analysts' expectations. Forecasts compiled by the company range from £100.0m to £105.0m. Management attributed the improved outlook to strategic progress, operational improvements and continued momentum.

A surprise for the sceptics

The update landed well with investors, with the shares reported to have risen about 8% on the day of the announcement. Part of that reaction may reflect how low expectations for growth had been set beforehand.

Just over two weeks earlier, on 19 October, Citi had downgraded the stock to neutral while raising its price target to 290p from 235p. The bank argued that after a rally of about 28% in three months, the shares looked fairly valued at around 9.5 times forecast 2027 operating profit. It suggested that organic growth was modest compared with industrial materials peers and predicted that third-quarter growth would look muted.

The bank's analysis also touched on the very question the company (LSE:MGAM) has now moved forward, estimating that a sale of the Thermal Products insulation business could be worth around 310p per share on a sum-of-the-parts basis. On that view, the disposal scenario offered limited additional upside from where the shares traded at the time, although the shares and the assumptions have since moved on.

Portfolio shape in focus

The review is significant because it raises the prospect of a change in the shape of the group. A sale would reduce Morgan's exposure to industrial insulation and leave a business more weighted towards other activities, including the aerospace and energy markets that the update singled out for solid growth.

Those end markets are also where the recent update reported the greatest strength, which helps to explain the logic of the review, even though the company has not committed to any particular outcome. Price, the use of any proceeds and the financial profile of the remaining businesses would all be central to any assessment of a deal, and none has been disclosed.

The update did not provide figures for margins, net Debt or restructuring costs, nor did it offer any estimate of the value of the division. Investors will therefore have to wait for further detail. The company said only that it would update the market as appropriate, leaving open the timing of any conclusion.

The next scheduled milestone is the publication of the full-year results on 11 March 2027. Those numbers will show whether the group has delivered on its guidance for profit at the upper end of the forecast range, and may also offer the first clear view of where the Thermal Products review has reached if it has not concluded earlier.