Melrose Industries Plc

 
Melrose Industries Plc (LON: MRO) is an investment company that specialises in buying strong fundamental manufacturing business which can be further improved in terms of performance. The company provides products such as air management, security, home automation, ergonomic and electricity generating equipment. 
 
Trading Update
On 19th November 2019, Melrose Industries released an update for the 4 months period ending 31st October 2019. The company is trading in line with the board's anticipations for the year 2019. In the current period, Aerospace sales growth surged by more than 5 per cent as compared with the corresponding period of the last year. The aerospace division also delivered a good margin in the current period from the same period last year. During the current period, Automotive sales decreased by 5 per cent year-on-year, due to the temporary impact of the General Motors strike in the United States, while Automotive division delivered a higher profit and margin in the current period. In Powder Metallurgy division, the sales reduced by 13 per cent in the current period against the same period last year. In the current period, Powder Metallurgy contracts were traded to acquire Forecast 3D, which had 2018 sales of $19 million. In Nortek Air & Security division, the company has seen increasing year-on-year trends in the current period, while this division attained modest sales growth. The company’s net debt was in line with the company's expectations with substantial investment and restructuring actions being funded to an additional increase in performance and early steps to decrease working capital in GKN.

Share Price Performance

Daily Chart as ofJanuary 30^th, 2020, before the market close (Source: Thomson Reuters)

Melrose Industries Plc shares were trading at GBX 244.50 at the time of writing before the market close (at 10:16 AM GMT) on 30^th January 2020 and were down by 1.29% versus the previous day closing price. Stock's 52 weeks High is GBX 254.60 and Low is GBX 154.20.The shares of the company have delivered a positive return of 28.15 per cent in the last six months. The shares of the company have delivered a positive return of 1.99 per cent in the last month.

Conclusion
The company’s business was affected due to an adverse macro-economic condition. During the period, automotive sales were down 5% year-on-year due to the General Motors strike in the US. The company faces a risk of loss of key management which could affect the operations of the company. Any change in government policy, regulations, etc. could impact the overall business of the company. Fluctuation in foreign exchange rates could affect the profitability of the company. However, the company is well-positioned. Its performance is as per the expectations. The business is improving, and the management looks confident for the growth of the company. Significant investments are made to improve business performance and to reduce working capital.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 243.40 (as on 30^th January 2020, before the market close at 8:35 AM GMT).

Paragon Banking Group Plc

Paragon Banking Group Plc (LON: PAG) is into banking business established in the year 1985. The company is a specialist in lending and offer a wide range of products related to savings through Paragon Bank PLC in the UK. The company, through its subsidiary Idem Capital, invest in and manage loan portfolios.

Trading Update
On 30^th January 2020,Paragon Banking Group released an update for 3 months period ending 31^st December 2019. The company’s performance was in line with the expectations for the period. The new business increased by 3.7 per cent to GBP 684.9 million with stable redemption levels. The net loan book went up by 1.6 per cent to GBP 12.4 billion for the period. The Specialist buy-to-let lending surged by 1.1 per cent at GBP 375.4 million on a year-on-year basis. The company remained focused on professional business with higher margin, which resulted in lower buy-to-let volumes and overall mortgage lending declined by 4 per cent for the period.  The new business volumes from commercial lending surged by 19.9 per cent. The commercial lending contributes around 12 per cent of net loan assets in the fourth quarter. Driven by the expansion of product and channel and savings proposition development, the deposits balances increased from GBP 5.6 billion to GBP 6.6 billion for the period. The CET1 ratio (unaudited) stood at 14.2 per cent for the period.

Share Price Performance

Daily Chart as of January 30^th, 2020, before the market close (Source: Thomson Reuters)

Paragon Banking Group Plc shares were trading at GBX 522.50 at the time of writing before the market close (at 10:17 AM GMT) on 30^th January 2020 and were down by 0.85% versus the previous day closing price. Stock's 52 weeks High is GBX 555.50 and Low is GBX 385.20.The shares of the company have delivered a positive return of 27.07 per cent in the last six months. The shares of the company have delivered a negative return of 3.15 per cent in the last month.

Conclusion
Paragon Banking Group PLC has a strong business model supported by decent growth. In the FY19, the group’s Net Interest income recorded a growth of 9.4 per cent on a YoY basis. The company’s total operating income had increased with the growth in the size of the average loan book. The company’s strategic transformation is reflected by good growth in the lending business, particularly in consumers and SMEs segments. The company had a strong capital base supporting the overall growth with basic CET1 of 14.2 per cent.

 Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 516.50 (as on 30^th January 2020, before the market close at 8:40 AM GMT).

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