It's not often that a 6 per cent fall in underlying operating profit triggers an 11 per cent surge in a company's share price. But that's exactly what happened at Meggitt (MGGT), as investors rejoiced that the damage wasn't worse and cheered an impressive 36 per cent jump in free cash flow.
As explained in October's gruelling profit warning, an industry-wide retirement of large jets has had a devastating impact on Meggitt's civil aerospace aftermarket business. Part of the engineer's strategy is to supply equipment free of charge to new aircraft before making a killing from parts and repair work, meaning it relies heavily on older planes to bring in profits.
Management hopes that its recently formed customer service team, together with the funds generated from cutting headcount by 400 across all divisions, will help to offset the aftermarket decline. As many as 200 staff will go at Heatric, which provides equipment to the oil and gas industry. This business continues to see contract deferrals as customers react to the depressed valuation of Brent crude by reining in spending. Fortunately, confirmation that the US will increase its defence budget after years of austerity should mean that at least one of Meggitt's struggling businesses returns to growth in the near future.
Broker Liberum forecasts adjusted EPS of 33.6p in the year to December 2016, up from 31.2p in 2015.
| MEGGITT (MGGT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 428p | MARKET VALUE: | £3.3bn | |
| TOUCH: | 427.4-428.1p | 12-MONTH HIGH: | 594p | LOW: 338p |
| DIVIDEND YIELD: | 3.4% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 281p* | NET DEBT: | 48% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 1.46 | 226 | 24.0 | 10.5 |
| 2012 | 1.61 | 281 | 30.1 | 11.8 |
| 2013 | 1.64 | 269 | 29.4 | 12.8 |
| 2014 | 1.55 | 209 | 22.0 | 13.8 |
| 2015 | 1.65 | 210 | 23.2 | 14.4 |
| % change | +6 | +1 | +5 | +5 |
Ex-div: 28 Mar Payment: 6 May *Includes intangible assets of £2.55bn, or 330p a share | ||||
