LONDON (ShareCast) - (Sharecast News) - The "explainer" released by Melrose Industries on Monday about its 19 Risk and Revenue Sharing Partnerships (RRSPs) is a "positive development," Citi said in a research note.
Melrose shares surged on Monday afternoon after it released a 40-page booklet explaining the accounting around its RRSPs and said the portfolio was "well positioned" to generate significant returns for investors in the coming decades.

"In our view, the recent relative share price weakness has largely been due to a lack of market understanding of the relationship between profit and cash. This has sometimes led to doubts about the strength of mid-term cash generation," Citi said.

"The RRSP explainer provides detail on how the accounting works by engine programme and why IFRS 15 requirements have resulted in profit leading cash," it said.

"Significantly, the company has specified that it typically only recognises 10-30% of available aftermarket income at the point of delivery (on the five programmes where expected aftermarket market income is pulled forward).

"We believe this should be viewed as prudent accounting given Melrose's workshare is substantially complete at the point of delivery.

"Overall, we see this a positive step towards the market understanding the potential strength of the company's midterm cash generation."

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE