Everything appeared to be going well at aerospace engineer Meggitt last year until a profit warning in November brought the share price crashing down to earth. A currency hit had been expected, but factory consolidation problems at the US sensing-systems business, issues around the timing of energy-contract wins and a £20m charge to cover a raw material supply issue were not. Thankfully, there were no surprises in these numbers. In fact, there's enough here to restore not only management’s reputation, but also our positive view on the shares.
Crucially, there were no further issues at the energy division, where revenue actually grew 5 per cent to £173m. A shortage of tourmaline crystals hit sales of high-margin sensors during the second half, but customers are expected to have finished testing alternative materials by the end of June. And chief executive Stephen Young expects the energy division to book the large order that slipped out of the fourth quarter within the next few weeks. "Energy will be fine this year," he tells us, confidently predicting double-digit growth for at least the next few years.
Once again, commercial aerospace was Meggitt’s biggest money-spinner last year. Organic sales of equipment fitted to big jets like the Boeing 787 jumped 11 per cent to £300m. Boeing and Airbus are working through eight-year backlogs and both the 787, Airbus A350 and other programmes will ramp up significantly this year. Meggitt has won lots of extra orders for wheels and brakes, too. There was even better news on higher-margin aftermarket work, which has been a drag for some time. Sales were flat last year but grew during the second half, and Mr Young expects mid-single-digit growth in 2014. Next year the growth rate could be double that.
Work on non-US military programmes like the Typhoon fighter jet should lead to only a "modest contraction" in defence sales this year, when broker Investec Securities expects group adjusted pre-tax profit to rise to £390m, giving adjusted EPS of 37.9p (from £378m and 36.9p in 2013).
MEGGITT (MGGT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 492p | MARKET VALUE: | £3.9bn | |
| TOUCH: | 491-492p | 12-MONTH HIGH: | 575p | LOW: 454p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 17 | |
| NET ASSET VALUE | 260p* | NET DEBT: | 27% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 1.15 | 181 | 20.5 | 8.45 |
| 2010 | 1.16 | 173 | 20.1 | 9.2 |
| 2011 | 1.46 | 226 | 24.0 | 10.5 |
| 2012 | 1.61 | 281 | 30.1 | 11.8 |
| 2013 | 1.64 | 269 | 29.4 | 12.8 |
| % change | +2 | -4 | -2 | +8 |
Ex-div: 12 Mar Payment: 9 May *Includes intangible assets of £1.46bn, or 183p per share | ||||
