Today I am laying out the investment case for three of the FTSE 100‘s top-notch engineering plays.
Defence sector on the mend
Aerospace giant Meggitt’s (LSE: MGGT) full-year results today underlined the difficulties seen in critical defence markets in recent times. The business saw revenues slip 5% during 2014, to £1.5bn, a result that saw pre-tax profit slump 13% to £328.7m.
Still, Meggitt’s release underlined the recovery in arms demand, with military sales coming in flat for the second half but marking a terrific improvement from the 13% decline punched during the previous six months. Indeed, the firm noted that defence spend in its critical US marketplace looks set to become more “benign” compared with previous years.
This news will come as music to the ears of BAE Systems (LSE: BA), which itself noted last week that “US budgets are now relatively stable, with some early indications of a modest improvement in 2016.”
The company said it expected earnings to tick higher in 2015 as Cyber and Intelligence sales to the UK and US increase. BAE Systems also underlined the growing importance of emerging markets, revenues from which are anticipated to surge 10% this year.
Given the multitude of conflicts raging across the globe, from ISIS fighters marching across the Middle East through to Russia and the West seemingly heading towards Cold War 2.0, a rise in weapons spend from both traditional customers and new, exciting markets seems an inevitability.
Civil transport trends to boost sales growth
On top of this, Meggitt also looks set to benefit from a strident commercial aerospace sector. The company noted that “the outlook for our civil aerospace markets remains encouraging,” and that the rate of production for large aeroplanes should keep on growing. Meggitt saw organic civil aeroplane sales advance 6% during 2014.
Fellow engineering giant GKN (LSE: GKN) is also in great shape to enjoy surging commercial plane demand looking ahead — the business generates almost 22% of group sales from this sub-sector.
Organic civil aircraft sales rose 4% last year, the firm noted in its own full-year results released today. And GKN remains bullish over this market looking ahead, noting that its “strong commercial order book supports attractive growth… over the medium term.”
In addition, GKN is also enjoying the fruits of surging global car demand, the business reporting organic sales expansion of 8% at its Driveline division in 2014. Indeed, strength here drove group pre-tax profit 4% higher last year to £601m.
Enhanced by a rising geographic footprint and greater component loadings per vehicle, the business expects sales at its Driveline and Powder Metallurgy arms to continue outperforming the broader market looking ahead. Indeed, GKN said it expects 2015 “to be a year of further growth” on the back of bubbly demand for its automobile and plane components.