Join our community of smart investors

Meggitt gains from currency movements

The engineering group is confident about its military business’s prospects under President Trump
August 2, 2017

Meggitt (MGGT) experienced a mixed first half, with good organic revenue growth seen by its civil aerospace division, flat sales for its military division and “expected” weakness in energy. Overall, these contributors led to flat organic growth for the group, while the reported top line saw a double-digit rise principally on sterling depreciation against the US dollar. The small hit to Meggitt’s operating margin, taking it from 18.5 per cent to 18 per cent, was anticipated; for chief executive Stephen Young, Meggitt is “always bigger in the second half” – particularly in relation to defence and air traffic revenue.

IC TIP: Buy at 511p

Despite a lack of growth, management is confident about the military division’s prospects in the US under President Trump, particularly as military budgets are expected to rise by 4 per cent. Mr Young notes that Meggitt could supply the additional parts needed by military aircraft which are “parked up but unable to fly”.  

Energy suffered because of a 45 per cent organic revenue decline at Heatric, the printed circuit heat exchanger business. However, this business has started to see “an up-tick in small orders”. Generally speaking, Meggitt is focusing on inventory management and is aiming to achieve “an incremental £200m of cash from improved inventory turns by 2021”.

IBES consensus forecasts give EPS of 35.5p for the December year-end, rising to 37.4p in 2018.

MEGGITT (MGGT)   
ORD PRICE:510.5pMARKET VALUE:£3.96bn
TOUCH:510.0p-510.5p12-MONTH HIGH:512pLOW: 398p
DIVIDEND YIELD:3.0%PE RATIO:13
NET ASSET VALUE:318p*NET DEBT:45%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2016**88339.04.84.80
201798618620.75.05
% change+12+376+331+5
Ex-div:07 Sep   
Payment:29 Sep   
*Includes intangible assets of £2.7bn, or 353p a share **2016 figures have been restated following the finalisation (in the second half of 2016) of the fairvalues of the Advanced Composites and EDAC businesses, in accordance with IFRS 3