Industrials

Report by Dragoneye Research

Since Dragoneye's initiation in early Jun, the share price has dropped by over 25%, offering a significant short opportunity. This decline was driven by several factors: persistent cash flow issues, concerns about past management incentives and motivations, and a growing recognition that aggressive accounting practices have inflated profits. These issues culminated in a significant cash downgrade following the first-half results. Dragoneye's exclusive 49-page report highlighted all of these problems. A recent follow-up report, after the first-half results, further emphasizes potential downside risks if more questions are raised about the company's use of factoring. Factoring appears to have boosted an already weak first-half cash flow figure, but this was not disclosed in the company's financial statements.

Report by The Edge

The companies highlighted in The Edge's latest report are all undervalued vs. their industry peers, while exhibiting strong fundamentals, including impressive profit margins and strategic leverage. European and US names include: 1) Melrose - divesture of its Aerospace division looks set to unlock considerable value for investors. 2) Solvay - the share price has rerated sharply higher following the successful spin-off of Syensqo earlier this month. 3) BorgWarner - ICE to EV opportunity. 4) MDU Resources - the next big utility play; activist involvement. Click on the button below for further information on how to capitalise on these and more spin-off opportunities.

Financials

Covid has found management having to take far longer with the GKN turnaround than they initially thought. As a result, Andrew Hollingworth wonders if Mr Market has forgotten what they are capable of. He considers the price of success - i.e. what value to ascribe to MRO should its turnaround be broadly successful. The short answer is: £15.7bn. This being the EV that he postulates current pre-split MRO is worth c.3 years from now (~125% return). For some investors an assumption of the Aerospace division's growth in the coming years + margin recovery + re-leveraging + this capital being used to boost equity returns sounds like a super-unlikely tri-factor of events. Andrew disagrees…