Aerospace and defence engineering company Meggitt (MGGT) raises its 2018 revenue guidance as ‘trading in the second quarter has been stronger than previously expected’.
Investors seem impressed, the company’s share price gains 3.6% to 511.3p on the news.
The company designs and makes high end components for the defence and aerospace sector as well other specialist areas.
Meggitt has had its problems in the past but Shares recently became more positive on the stock and the company has enjoyed a share price rally since mid-April.
The guidance increase amounts to a 2% improvement on the market’s 2018 forecast. This means that 2018’s earnings before interest and tax is now predicted to be £346.8m, up from £340m and its earnings per share now 32.13p.
WHERE'S THE GROWTH COMING FROM
Military growth expectations have been increased to between 6% and 8% from a previous range of 3% to 5%. Specifically, the company has seen more demand for training equipment and retrofit fuel tanks for the F/A Hornet US fighter jet.
More generally Meggitt has been a beneficiary of increased US military spending under President Trump, therefore this upward revision to guidance is mostly down to this sector.
Meggitt’s civil division hasn’t been slacking off though, revenue guidance for its aftermarket services have been increased by one percentage point to a range between 4% and 6%, up from its previous band of between 3% and 5%.
RESTRUCTURING
The company is restructuring its divisions to give its customers more of a joined up approach.
The new divisions are Airframe Systems, Engine Systems, Energy & Equipment and Services & Support. The company announced this news in a separate statement.
Barclays analyst James Zaremba says ‘the divisional restructure off the back of an upgrade will be taken positively as 1) customer focus makes sense in an organisation where this has been a historic challenge due to sole-source positions and 2) this creates three clear Aerospace divisions which investors may give a different valuation to vs. the fourth ‘catch-all’ division'.
Meggit trades on 14.8-times 2019’s earnings paying a prospective dividend yield of 3.4% using investment bank Morgan Stanley’s forecasts.
