Morgan Advanced Materials: Margins Grind Toward 12% Beneath a Take-or-Pay Distortion
H1 2026 in line — but strip the £8.9M phasing benefit and the real margin is 9.6%; a Thermal Products strategic review and site turnarounds light the path to 2028.
MGAM.L · Earnings Call · 2026-08-06
An in-line first half, but the real number hides below the headline
Morgan Advanced Materials' half-year results to 30 June 2026 were, by management's own framing, in line with expectations. Revenue reached GBP 518 million, up 4.8% on an organic constant-currency basis, with adjusted operating profit of GBP 57.8 million for an 11.2% margin. Yet the headline masks the true run-rate: it includes a phasing benefit of GBP 8.9 million from a take-or-pay arrangement with a semiconductor customer that pulled revenue forward a half-year. “Our revenue includes a GBP 8.9 million phasing benefit from a take-or-pay arrangement with one of our semiconductor customers, which will not repeat in H2.” — Richard Armitage, Chief Financial Officer · 2026-08-06 Excluding that, organic growth was 3% and the adjusted operating margin was 9.6% — still a meaningful sequential improvement from H2 2025, driven by a 250-basis-point efficiency and simplification contribution. The take-or-pay is itself a marker of the Semicon business's structural transition. As the CFO explained, the customer simply no longer wants the products: “They have honored the take-or-pay agreement and they paid it to us and satisfied that obligation during the first half.” — Richard Armitage, Chief Financial Officer · 2026-08-06 This is the residue of product sourcing moving to China — capacity was built for silicon carbide materials that are now only "commissioned progressively" as Western demand returns. Encouragingly, management sees a rebound in memory-chip demand on the manufacturing side of the silicon business.The energy engine and the data-center tailwind
The genuine growth engine is energy and aerospace. Technical Ceramics grew 7.8% at constant currency, with aerospace & defense now 39% of divisional revenue, driven by ceramic cores for jet-engine turbine blades and by industrial gas turbines that increasingly power data centers. On the call, Damien Caby described the "double multiplier effect" of both market growth and share gains in battery storage, wind, and fuel cells:That is a strong growth in Energy narrative that ties directly into the global artificial-intelligence capital-expenditure theme — several other reporters this season also flagged data-center power demand. The company is positioning its microporous materials as a cost/performance alternative to aerogels in LFP battery packs, and its high-temperature insulation as a multi-product solution for fuel cells.We're seeing, as I mentioned, significant growth in battery storage, which is — which are areas where we're not only growing with the market, but we're actually establishing a nice position with our technologies and essentially establishing or growing a share in a market that's growing. So you have the double multiplier effect.
Portfolio in motion
The most consequential item for the stock is probably the strategic review of Thermal Products, announced earlier this year and still underway. Management describes "a number of options," with a potential disposal explicitly on the table, and said they have made "good progress in assessing the division's growth prospects." The alternative, the CFO noted, is realizing the business's identified growth and margin potential in-house. Thermal Products returned to 2.5% growth in the half (led by Asia and North American energy-storage project revenue), but equipment failures at its main North American site hit margins early in the year — now described as addressed. Alongside the Thermal review sit the site turnaround programs, which are central to the 12%-by-2028 target. At Augusta, Georgia, the new finished-inventory concept is 70% implemented, underpinning a >50% reduction in lead times and 12% sales growth; the Hayward, California, ceramic-site closure announced in March is in the phased transfer of assets. These programs, management says, complete by end-2027. And the shares in Foseco India — valued at GBP 49 million — are being sold in H2, with the CFO citing "very good interest" from institutions once the close period ends. Proceeds will help bring year-end leverage to ~1.7x versus the current 2.0x.Outlook and the 2027 bridge
Guidance for 2026 is sober: ~2% organic constant-currency revenue growth, with H2 operating margin "broadly in line" with H1 (excluding the non-repeating take-or-pay). The caution is Europe. “We've seen some attentism and cautiousness in the market to make big turnarounds or expand capacities in Europe.” — Damien Caby, Chief Executive Officer · 2026-08-06 That extends beyond Thermal Products into Performance Carbon order books — a temperate but real geopolitical overhang. For 2027, the CFO pointed back to the December CMD bridge from ~9% to margin improvement toward 12% by 2028, split roughly into thirds: modest revenue growth, site turnarounds, and other operational improvements.With capex expected to stay near GBP 50 million (about 1x depreciation) and both the simplification and ERP programs winding down by end-2027, management expects positive free cash flow into 2027 — a clean setup to finally reach the long-run margin and deleverage goals.I think we're reasonably comfortable with where consensus is currently sitting, and you can envisage that we get there through those 3 courses of action.