Engineer GKN's shares jump on solid results and promising news for military spending

 
Courtney Goldsmith
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GKN has been hit by reduced military spending – but that could change now (Source: Getty)

Following GKN's previous struggles with slowing military spending, news of Donald Trump's plan to increase the US defence budget must have been music to the ears of the engineering firm's investors.

The figures

For the year to the end of December, the car part maker posted underlying profits before tax up 12 per cent to £678m. That includes a £39m restructuring charge.

Organic sales grew two per cent, which GKN said continued the group's market outperformance.

The group, which supplies components for Airbus and Boeing aircraft, has announced a full year dividend of 8.85p per share, up two per cent on the previous year.

Shares in the firm jumped 6.47 per cent to 365.2p in afternoon trading.

Why it's interesting

This year reflects the first full year of sales with Fokker, a technologies firm the company acquired in 2015, and GKN said Fokker's sales and margin are ahead of expectations while its full-year organic growth was above the market.

GKN previously warned it could face a bumpy road ahead with growth in many of its major markets "easing".

The group has suffered from reduced military spending, particularly the decline in F/A-18 Super Hornet and UH-60 Black Hawk helicopter orders, said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

However, "with Donald Trump announcing a $54bn (£43.4bn) military spending plan, that could all be about to change", Hyett added. The US President yesterday announced his plan to increase defence spending by 10 per cent, and defence firms both in the US and UK have already felt the benefits.

What GKN said

Chief executive Nigel Stein said:

This is a good set of results with GKN continuing to make underlying progress in line with our expectations. We performed well against our key markets, overcoming some demand weakness and demonstrating once again the strength of our businesses, strong market positions and leading technology.

Strategically we made good progress, including smoothly integrating Fokker and completing the disposal of Stromag – evidence of our sharper focus on capital allocation towards aerospace and automotive markets.

We expect 2017 to be another year of further growth, helped by the benefits of the actions taken in 2016 and GKN's constant focus on continuous improvement.

What analysts said

Hyett said:

The acquisition of Fokker has boosted GKN’s topline numbers, but underneath the headlines the group is delivering a steady performance.

Integration is proceeding according to plan, with low single digit sales growth across the key aerospace and automotive divisions. Targets would see the group growing ahead of its end markets next year, but don’t feel overly ambitious given the key role that GKN’s products play, hopefully allowing the business to continue its recent solid performances. A whopping pension deficit does remain something of a headache though.

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