Shares in Meggitt (LSE: MGGT) fell by more than 7% in early trade, after it downgraded its full-year expectations for revenue growth in interim results released to the market.
The global engineering group has deferred $25m-$30m of expected revenue to 2015 now, following heat-exchanger business Heatric‘s local content provider in Brazil filing for protection from its creditors last month. Meggitt says that it has implemented contingency plans, but anticipates an impact on revenue growth and costs regardless.
The news was enough to dampen investor sentiment in the shares, despite a strong order book (up 9% organically, 1% on a reported basis) in what management are calling a “challenging market”. Half-time revenue was down 3% organically and 11% on a reported basis to £718.9m from £810.1m at H1 2013, leading to a 17% and 21% fall respectively in organic and reported pre-tax profit.
Chief executive Stephen Young commented: “Performance in the first half was mixed, with very strong orders but weaker than expected military revenue”. Meggitt’s military revenue accounts for a third of the group’s revenues, contributing further to today’s profit warning. Young continued: “Group revenue was lower due to the well-trailed impacts of currency, disposals and an unusually high second-half weighting this year, which also impacted our margin.” He also warned of the strong sterling continuing to weigh on results in the near term.
Management increased the dividend by 8% to 4.25p per share, however, in spite of earnings per share falling by 23%, with Young stating the rise reflects “…our continuing confidence in the prospects for the Group”.
Worth noting is that Meggitt’s shares spiked mid-July following rumours circulating at the Farnborough Air Show that the Dorset-based global engineering group is being eyed up for a takeover by a US predator. Today’s depressed share price could lead to any interest being followed up by a firm bid, but as yet that is all just speculation and is certainly unwise to buy the shares on rumours alone without undertaking necessary research of a company’s financials.
