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Shares in aerospace, defence and energy engineer Meggitt (MGGT) are 10% for the better this morning as investors react to a positive outlook for 2017 and hopes that the company will be a beneficiary of increased US military spend.
While group profits fell 6% in 2016 due to tough energy markets, and the division is seen remaining under pressure (organic revs seen down 5-10% in 2017), a group outlook for 2-4% organic revenue growth, up from 2016’s 1%, targeting at least some operating margin expansion, appears sufficient to rekindle bullishness. Especially when combined with a near 5% dividend hike that keeps the yield above 3.5% and a strong second half of 2016 that has delivered momentum in 2017.
Investors are perhaps wondering whether guidance for 1-3% organic military revenue growth will prove conservative in light of Trump’s warm-up remarks yesterday before tonight’s key congressional address.
Expectations for strong civil markets and revenue growth of 4-6% is encouraging in the context of continued global economic recovery, as are positive results and read-across from the likes of sector peers BAE Systems (BA/; +1.7%), Cobham (COB; +2.4%), Babcock International (BA; +3.25%) and GKN (GKN; +5.6%).
Mike van Dulken, Head of Research, 28 Feb 2017
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