Persistent weakness in pivotal oil and civil aerospace after-markets could weigh further on Meggitt's (MGGT) shares in the year ahead. That backdrop forced management to issue a profit warning in October, and since then there's been little to suggest these markets are improving.
While our original tip factored in oil headwinds, we were comfortable that providing valves, condition-monitoring equipment and printed-circuit heat exchanges to the energy sector contributed just a tenth to group sales with the oil price at $48 a barrel. Unfortunately, the black stuff is now valued at just $32.
Rocky prospects for Meggitt's recurring after-market business are even more concerning. Supplying high-margin kit to rare, older planes was a sweet spot for years. But surplus spare parts in the large jet after-market, coupled with legislation forcing airlines to take less environmentally-friendly planes out of service, have now taken the shine of this investment case in the short term.
