Daily Telegraph25 Feb 2015 07:27
Meggitt remains on Questor’s radar but it’s not yet a buy: Meggitt’s shares suffered a 6% fall as the engineering group’s annual results failed to justify the 35% rise the stock has enjoyed since October. The full year numbers were in line with expectations – at constant currencies, revenue was flat at £1.6 billion and pretax profit was down 13% at £328.7 million – so the past four months have been a case of travelling in hope. That’s not to say the numbers were bad. Civil aerospace, which represents a whisker under half of the FTSE 100 group’s total sales, rose 6% when adjusted for currency changes. Military, at £539 million of total sales, was down 7%, while energy, with revenues of £163 million, was off by 3%. The lower oil price was one factor behind the decline in Meggitt’s energy business. Oil and gas producers are slashing capital expenditure across the board in the face of $50 oil. However, the company is confident that once the current panic ends and energy groups take a more reasoned look at areas in which to scale back, then Meggitt will be well positioned to benefit. Stephen Young, Chief Executive, sees hope in the 8% increase in defence spending pencilled in by Barack Obama’s in his President’s budget, but is realistic about what this figure will eventually be negotiated down to. “After years of budget cuts the prognosis is for flat spending, maybe slightly up,” he said. “The amount eventually agreed on [will probably be less] but some parts of the military will get more, such as the airforce.” Rather than new expensive projects, Mr Young sees Meggitt benefiting from the U.S. upgrading and refurbishing of equipment such as helicopters and land vehicles which have been worn out by long periods of service in Afghanistan. But it’s civilian aerospace where Meggitt shines. Mr Young pointed to the 63,000 aircraft using the company’s technology where it is the sole supplier - a position the business is unlikely to lose. Questor last looked at Meggitt in December when the shares where at 501p and rated the company as a hold but one to watch. Things are certainly getting better but at the current price-earnings ratio the shares still look a little too expensive to deserve an upgrade to buy - though that point is getting closer. Meggitt at 537p. Questor says “Hold”.
Sign In
Follow the stocks
