Aerospace and defence engineering firm Meggitt (LSE: MGGT) fell by 3% this morning. The group reported a 60% slump in pre-tax profits, which fell to £46.6m during the first half of the year.
The reality isn’t quite so bad. Meggitt’s reported profits were hit by a £50.8m non-cash fall in the valuation of various financial instruments held by the firm. The main cause of this was the post-referendum fall in the value of the pound.
Underlying pre-tax profits for the period were unchanged from last year at £152m. Underlying earnings per share edged higher to 15.4p, while the interim dividend has been increased by 4% to 4.8p per share.
Sales growth in civil aerospace (+18%) and military (+10%) outweighed falls in the group’s energy business. The order pipeline also appears to be improving. Meggitt’s order book rose by 18% to £911.8m during the first half, thanks to a mixture of organic growth and acquisitions.
Net debt is expected to fall during the second half of the year. Assuming it does, the shares look reasonable value to me, on 13 times forecast earnings and with a prospective yield of 3.5%.
Financial profit from Brexit
City firm Tullett Prebon (LSE: TLPR) said this morning that operating profit rose by 11% to £67m during the first half.
Tullett negotiates complex deals between investment banks and other big traders in the City. The group’s business is being eroded by increased levels of electronic trading, but Tullett is responding. The group acquired an energy trading business in 2014 and is currently in the process of acquiring the broking business of rival ICAP.
Today’s results suggest chief executive John Phizackerley is doing a good job. Tullett’s underlying operating margin rose by 1% to 15.6% during the first half of the year. Underlying earnings per share rose from 17.7p to 21p and net cash was stable, at £131.8m.
Analysts expect Tullett to report full-year earnings of 31.9p per share and to pay a dividend of 17p. These figures put the shares on a 2016 forecast P/E of 10, with a potential yield of 5.2%. I rate Tullett as a strong buy.
Uncertain outlook?
Chemicals group Elementis (LSE: ELM) fell by 4% this morning after the group reported a 7.3% drop in sales, which fell to $334m during the first half. Pre-tax profit fell by 31.5% to $44.7m during the same period.
However, the 2.7 cents per share interim dividend payout was left unchanged and remains comfortably covered by earnings. Elementis also has a strong balance sheet with net cash of $37.5m, up from $16.1m at this point last year.
There were some bright spots in today’s results. Sales of coatings were 1% higher than last year, with growth of 11% in North America and 6% in China. Personal care sales were up 7%. The main weaknesses were in the group’s oil and chromium businesses, where sales and profits fell sharply.
Current forecasts suggest Elementis will generate earnings of 18 cents per share in 2016, rising to 19 cents in 2017. This puts the shares on a forecast P/E of 16, falling to 15 in 2017. Although this doesn’t seem very cheap, the group’s strong balance sheet and 4.7% prospective dividend yield mean that the shares could be a reasonable buy.