Meggitt PLC's (LON:MGGT) shares are flying higher today after the engineer lifted its full year dividend and said it expects improved revenue growth in 2017 as the new US administration plans to boost defence spending.
The engineer, which specialises in aerospace, defence and energy markets, reported a 7% drop in statutory pre-tax profit in the year to 31 December 2016 to £195.5mln, compared to £210.2mln the previous year.
The decline reflected a £66mln mark-to-market loss of financial instruments on currency hedges against future transaction exposure and the amortisation of intangible assets arising from the acquisitions of the advanced composites businesses of Cobham and EDAC in 2015. It was partially offset by a £40.7mln gain on the disposal of drone business Meggitt Target Systems to QinetiQ in December.
Based on its confidence for 2017, the company raised its dividend for the year to 15.1p, up 5% on the prior year’s 14.4p.
Revenue rose to £1.9bn in 2016 from £1.6bn the prior year, a 21% increase on a reported basis, supported by favourable foreign exchange movements and contributions from Cobham and ADAC.
Organic revenue, excluding the impact of the newly acquired businesses and currency tail-winds, rose just 1%.
Order intake climbed to £1.9bn from £1.6bn, up 22% on a reported basis and 3% on an organic basis.
Meggitt said growth in multi-year orders in the civil after-market and military sectors offset declines in its civil original equipment and energy arms.
Civil aerospace - representing 51% of group revenue - saw revenue rise to £1.1bn from £808.7mln, driven by a robust performance in the civil after-market.
The company is confident about the growth outlook for the division with a firm order backlog for deliveries of Airbus and Boeing jets.
Elsewhere, the military business accounted for 35% of group revenues, with most of the orders coming from the US. Revenue in the division rose to £697.1mln from £570mln as the company saw second half recovery following a challenging first half.
Meggitt expects the business will benefit from US President Donald Trump’s plans to increase defence spending by a record US$54bn.
“Military budgets have increased in many regions for the first time in several years, and there remains significant opportunity for retrofit and reset activity - a key campaign pledge from President Trump and work which Meggitt is well equipped to win,” the company said.
In contrast, the energy division’s revenue fell to £137.9mln from £149.8mln, reflecting continued struggles in the oil and gas sector. The company said it continues to expect head-winds in the energy business in the short term due to the continued absence of capital expenditure on new gas projects, on which technology from Heatric - the group’s printed circuit heat exchanger business - is deployed.
Overall, Meggitt expects 2017 organic revenue growth of 2-4%, excluding the disposal of Meggitt Target Systems.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “No bad news is good news for Meggitt investors. After five profit warnings across 2014 and 2015, the group finally seems to be looking forward to a more upbeat future."
Shares rose 13.70% to 473.1p in afternoon trading.
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