Dangerously close to FTSE 250 relegation, but this industrial stock could be a long-term winner

Morgan Superior Supplies (LSE:MGAM) is a FTSE 250 industrial firm, specializing in specialist merchandise utilizing carbon, superior ceramics and composites. This contains thermal merchandise like these used for electrical car charging and ceramic cores for plane engines. It markets itself as a worldwide chief, and it’s actually working in sectors with excessive calls for for precision devices and merchandise, which creates one thing of an financial moat.

Nevertheless, the previous couple of years haven’t been simple. The truth is, the inventory is buying and selling close to 10-year lows. Morgan has struggled lately as a consequence of weak end-market demand, significantly in semiconductor and industrial sectors, together with opposed gross sales combine and international alternate challenges. 

Effectivity is vital

Morgan is increasing a restructuring programme that reduces manufacturing websites and improves effectivity. The truth is, the variety of websites it operates have fallen from 85 in 2016 to round 60 in 2025. These adjustments are delivering important annual value financial savings and enhanced working revenue advantages.

The corporate can also be investing closely in capital tasks, significantly increasing capability in high-growth areas like semiconductors, healthcare, and clear transportation, whereas sustaining flexibility to regulate spending primarily based on market demand.

Moreover, Morgan is specializing in digital infrastructure upgrades and a leaner administration construction to assist operational agility and buyer proximity, positioning itself for long-term progress regardless of present market uncertainties.

The valuation proposition

Morgan warned in August that full-year adjusted working revenue would doubtless are available in on the backside of market expectations, citing the challenges talked about above and continued comfortable demand.

Within the six months to 30 June, adjusted working revenue dropped to £58m from £71.3m a yr earlier, whereas income declined 8.7% to £522.6m. Clearly, not good. Buying and selling situations stayed tough throughout its industrial end-markets, with decrease orders in Europe and China and slowing progress within the US.

The ahead valuation is consistently altering given shifting forecasts and actions within the share value. The shares are actually buying and selling with a ahead price-to-earnings (P/E) ratio of 16.4 occasions. Given anticipated earnings progress within the medium time period, this determine ought to fall to 9.1 occasions by 2027 — that’s primarily based on earnings forecasts and at the moment’s share value.

Web debt, nevertheless, is forecast to stay appreciable relative to its fairness, peaking at £284m in 2025 earlier than edging decrease in subsequent years. For context, its market cap has fallen under £600m, and has come near the bottom capitalised corporations on the FTSE 250 index. Servicing this debt might effectively be the most important danger to contemplate when investing in Morgan.

The underside line

In the end, I’m an enormous fan of commercial corporations which have an financial moat and pricing energy. However the issue is the combination. A piece of income nonetheless comes from cyclical industrial markets — metal, automotive, power — the place volumes are underneath stress and prospects push again exhausting on value rises.

The newest outcomes, nevertheless, recommend the transition in direction of higher-margin and fewer cyclical industries hasn’t had an impression but. However it’s early days, and there are many different UK success tales.

Rolls-Royce’s profitable effectivity drive and transition noticed the inventory enhance in worth by 14 fold. Melrose Industries and Bodycote are additionally seeing constructive share value motion as they endure their very own transition programmes.

All thought of, I consider it’s price contemplating. Debt might hinder some progress, however the firm has potential.