Meggitt's share price rockets as profit beats expectations and Trump promises more defence spending

Courtney Goldsmith
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Meggitt's shares rose yesterday as Trump announced a huge increase to defence spending (Source: Getty)

Shares in Meggitt rose more than 11 per cent this morning after the aerospace and defence firm beat forecasts and investors cheer on Donald Trump's plan to pump up defence spending.

The figures

The firm's reported revenue increased 21 per cent to £1.99bn in the year to 31 December 2016, helped by foreign currency movements, while underlying reported pre-tax profit increased 13 per cent to £352.1m.

However, statutory pre-tax profit fell seven per cent to £195.5m.

The group posted a four per cent increase in civil aerospace organic revenue growth and a one per cent increase in military, partially offsetting the continued weakness in energy.

Meggitt raised its dividend five per cent to 15.1p, reflecting confidence in the firm's prospects.

Shares in the FTSE 250-listed firm increased 11.13 per cent at 462.4p in morning trading, taking it to the top of the Stoxx 600.

Why it's interesting

Donald Trump yesterday announced he plans to increase the US defence budget by 10 per cent, and defence firms on both sides of the Atlantic felt the benefits of that announcement - Meggitt's stocks rose to 417p.

The group benefitted from selling its Target Systems arm to fellow mid-cap group QinetiQ for £57.5m at the end of 2016. Meggitt Target Systems provides unmanned aerial, naval and land-based target systems to around 40 countries.

Former Rolls-Royce executive Tony Wood joined Meggitt in December as its new chief operating officer as the to help the company in its drive to target more operational efficiencies.

What Meggitt said

Chief executive Stephen Young said:

We are past the peak of engineering investment on the many new aircraft programmes that have recently entered, or are entering, into service. Our increased content on these new programmes will drive higher revenue in the coming years.

We are now focusing our resources to accelerate progress on our key operational initiatives which we expect will deliver significant improvement in operating margin and cash conversion by 2021.

Reflecting our continuing confidence in the prospects for the group, the proposed final dividend is 10.3p, resulting in a full year dividend up 5 per cent to 15.1p.

What analysts said

Mike van Dulken, head of research at Accendo Markets said investors are hoping the company will benefit from increased US military spending.

He added the energy division is seen remaining under pressure with organic revenue seen down five to 10 per cent in 2017.

However: "A group outlook for two to four per cent organic revenue growth, up from 2016’s one per cent, targeting at least some operating margin expansion, appears sufficient to rekindle bullishness. Especially when combined with a near five per cent dividend hike that keeps the yield above 3.5 per cent and a strong second half of 2016 that has delivered momentum in 2017."

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