Meggitt rides wave of US defence spending spree to defy Boeing 737 Max woes
Engineering firm Meggitt enjoyed a five per cent spike in its share price this morning after upping prediction for annual revenue growth to between four per cent and six per cent.
The FTSE 250 defence contractor has taken a significant hit in recent months, after Boeing grounded its 737 Max jet earlier this year in the wake of two crashes which killed 346 people. However, orders still grew by one-tenth over the first half and it boosted its interim dividend to shareholders.
Meggitt makes parts for military planes, passenger jets and other heavy machinery, and employs more than 11,000 people.
The figures
Meggitt’s pre-tax profit tumbled to £73m in the first six months of the year, a 31 per cent drop versus the same time in 2018. Boeing’s grounding of the 737 Max jet, which happened in March directly impacted the defence firm over the period, but this is expected to level out when deliveries to airlines resume.
Revenue grew 12 per cent to just under £1.1bn, while free cash flow jumped 80 per cent to £49m.
The board upped the dividend for shareholders by 5 per cent to 5.55p per share.
Why it’s interesting
Despite profit shrinking significantly from the Boeing crisis, Meggitt enjoyed strong business in both the civil original equipment and defence sectors. This was bolstered by two deals announced at the Paris Air Show, one with helicopter maker Textron and another with Lufthansa’s Technik subsidiary to provide maintenance and repair services for commercial planes in China.
The firm’s share price was boosted was a Goldman Sachs research note which upgraded it from “neutral” to a “buy” rating. This was in large part because of the fact that 80 per cent of Meggitt’s revenues come from the global aerospace and US defence markets. The latter of these has benefited from a 13 per cent increase in spending by the US government in the last two years.
Meggitt is said to be considering whether to bid against a private equity firm for fellow defence contractor Cobham. City A.M. understands the company does not have enough cash to make such an offer.
But City sources told the Mail on Sunday the board was nevertheless consulting with investment bankers Morgan Stanley on whether to launch a bid.
What Meggitt said
Chief executive Tony Wood said: “Trading in the first half was strong, with robust growth in both civil original equipment and defence and good performance in our civil aftermarket business, despite an easing in air traffic growth and lower demand for initial provisioning spares following the grounding of the 737 MAX.”
Main image: Getty