After the announcement

After the announcement, analysts appear to be pencilling in modest revenue growth next year, which could prove overly cautious. Also, there is expected to be no erosion in margins, with management continuing to focus on costs.

In a way, we are in a similar situation to the one we were in after the group's purchase of FKI in 2008. The resulting downturn led to a cut in guidance and a share price fall – but these falls created an excellent buying opportunity for investors with an appropriate time frame. Questor tipped Melrose in 2009 when the shares were at 154p.

Melrose recently bought German smart meter group Elster for £1.4bn and it looks like there will be a slowing of orders here, too. However, the introduction of smart meters is likely to be supported by EU regulations and this business has excellent medium–term prospects.

It is interesting to compare Friday's statement with that of engineer IMI, which said its revenues were up 4pc in the year to date. Revenues at Melrose are up 8pc. However, IMI shares actually rose, which was probably down to the fact the group did not provide an outlook for 2013.

However, things are undoubtedly tough at the moment industrial PC and Melrose's weekly order intake was 8pc lower than the first half of the year.

A lot of the weakness appears to be in its energy business. Its turbogenerators unit, which makes electricity generating equipment, saw revenues rise 13pc in the year to date. However, its orders next year are expected to be below this year's in terms of value – although volumes are expected to be higher as customers order smaller units. The book to bill – which is the ratio of orders received to units shipped – was 82pc. However, the prospects for this business in the next few years are sound, as the world remains structurally short of power.

Questor last recommended a purchase of Melrose shares on September 7 when they were at 236.7p. The shares are now 11pc below this level.

In its rights issue to buy Elster earlier this year, two new Melrose ordinary shares were issued for each existing share at 142p and the theoretical exrights price (Terp) based on the day before the shares traded ex–rights in July is 210p.

Analysts appear to be cutting next year's earnings per share figures to about 17p. This implies a 2013 forward earnings multiple of about 12 times. This is still a premium to other engineers, but Questor feels a higher rating is warranted because of management's track record and the sectors in which Melrose operates. The prospective yield is about 3.7pc next year.

Management was being conservative with its guidance on Friday and Questor still believes prospects for the business are sound. The business model is proven and, although the shares may trade sideways until some clarity on next year's growth emerges, Questor keeps Melrose as a buy.

The company is Melrose plc, listed under the symbol MRO, not Melrose Resources, which is listed as MRS.