23rd Feb 2016 11:28
LONDON (Alliance News) - Meggitt PLC shares surged higher on Tuesday after the aerospace and defence components manufacturer expressed confidence in its outlook for 2016 following a tough 2015, marred by a profit warning and demotion from the FTSE 100 index at the end of the year.
In October, Meggitt shares lose about a fifth of their value after it warned that deteriorating trading conditions in the third quarter of the year and scepticism of any improvement emerging soon meant its underlying operating profit for the full year would miss market expectations.
In a pre-close update in December, the group confirmed its expectation that negative trends in its markets would continue into 2016, hit by continued weakness in its energy business and sluggishness in aerospace and military sectors.
Though Meggitt still expects the slowdown in oil and gas markets to continue to hit growth in its energy business, on Tuesday it said the outlook for its civil aerospace business is encouraging, with organic growth to be in the low-to-mid-single-digit range for 2016 but with acquisitions to add to revenue growth in the segment.
In addition, Meggitt said military markets are entering a "more benign phase" following years of squeezed defence budgets globally, though the company maintained a relatively cautious stance for 2016 as it will take time for orders to flow through.
Still, these factors meant Meggitt was able to affirm its guidance for 2016, in line with the revised expectations it outlined towards the end of 2015, and added the negative revenue mix in its civil aftermarket business will be offset by job cuts that it will make.
Meggitt shares were up 12% to 432.60 pence on Tuesday, the best performer in the FTSE 250.
Meggitt said its pretax profit rose to GBP210.2 million in 2015 from GBP208.9 million in 2014, while revenue rose to GBP1.65 billion from GBP1.55 billion.
This increase was achieved within a tough operating environment for the group, as orders slowed over the course of the year from its energy business, due to the sharp slowdown in the oil and gas industry. Revenue for Meggitt's aerospace business grew in the year, but military revenue was flat.
The group's operating margin also came under pressure, narrowing to 19.8% from 22.3%, hit by a weak sales mix in its civil aftermarket sales, more spending on new products, and a tough environment for its Heatric heat exchangers unit.
Still, Meggitt's confidence on its outlook for the coming year pushed it to hike its final dividend to 9.80 pence per share, up 3.0% year-on-year, sending its total dividend up 5.0% to 14.40p.
"2015 was a challenging year for the group, with volatility across a number of our end markets affecting financial performance. However, we are confident that we are taking the right actions in the context of our long-cycle business," said Chief Executive Stephen Young.
By Sam Unsted; [email protected]; @SamUAtAlliance
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