Defence and aerospace group report a good year, but there's a warning for shareholders as management express concerns for next year
Meggitt falls victim to COVID-19 and halt of Boeing 737 production
- Defence and aerospace engineering Group reports revenue growth of 9% to £2.3bn following on from strong order intakes of £2.5bn, up 10%
- Operating profits grew at a similar rate and left profits before tax higher by 33% to £287mn
- Investors will be pleased to see the net debt reduce a little and a material improvement in free cash flows while the dividend was raised by 5%
- Share price drops 4% in early trading reflecting Management’s warning the upcoming year may not be as rosy
- Recommendation: We remain cautious on the sector as a whole and so maintain our ‘Hold’ recommendation
Defence and aerospace engineering group Meggitt PLC reported a good set of full year numbers as revenues grew by 9% to £2.3bn. This is following on from strong order intakes of £2.5bn, up 10%. Operating profits grew at a similar rate, leaving pre-tax profits higher by 33% to £287m. Investors will be pleased to see the net debt reduce a little, and a material improvement in free cash flows as the dividend was raised by 5%.
These good figures reflect strong performance in the respective end markets, civil aerospace, defence and energy, as well as property transactions and a large pension contribution in the prior year. However the share price this morning is down by over 4%, reflecting managements warning that the upcoming year may not be a rosy. The production halt of Boeing’s 737 MAX is the key factor for which the group is a supplier to, and Covid-19’s impact on the global economy and travel industry are also concerning management. They have given a reduced forecast for 2020 growth of between 2-4%, though operating margins are forecast to improve by 30-50bps.
The shares have fallen back a fair bit in recent weeks, reflecting the impact that Covid-19 has had on the airline industry, the travel sector and the market in general. Despite these headwinds, the group’s underlying performance has been good. However, it is natural to be cautious on the sector, and thus we maintain our Hold recommendation on the stock for investors seeking balanced return whilst also being willing to accept a medium level of risk.
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