Slow margin improvement overshadows Meggitt's results

Slow margin improvement overshadows Meggitt's results
By Reuters

LONDON (Reuters) – British engineering company Meggitt said it would take around two years before its operating margins significantly improve, sending its shares sliding after a recent strong run.

Shares in Meggitt, which supplies aerospace components and wheels and brakes for military fighter programmes, fell as much as 10 percent at the open before recovering to be down 3.5 percent on the underwhelming margin forecast.

Analysts said the group’s 2018 results showing 9 percent organic revenue growth were in line with forecasts but a prediction of a flat to 50 basis point improvement to the underlying operating margin from 17.7 percent looked light.

The group said it remained confident it would deliver its 2021 margin target of at least 19.9 percent, meaning the improvement will need to come in 2020 and 2021.

Meggitt’s margins have been dragged down by the Meggitt Polymers and Composites (MPC) unit, a part of the business that makes sophisticated engine parts which can withstand high temperatures from composite materials.

“While the margin guidance may disappoint more bullish forecasts, we view the guide as consistent with previous commentary for gradual improvement in MPC margins in 2019, and that progress towards the mid-term target of 19.9 percent would be more heavily weighted to 2020 and 2021,” Morgan Stanley said.

Shares in Meggitt have risen 15 percent since the beginning of the year. It had a market value of 4.4 billion pounds ($5.78 billion) before Tuesday’s results.

(Reporting by Kate Holton, editing by Louise Heavens)

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