Meggitt plc (LON:MGGT) shares fell after the engineer reported full year profit that missed expectations.
The engineer to defence, aerospace and energy industries posted pre-tax profit of £262.4mln in 2017, up from £195.5mln a year earlier, as it sold off five non-core units to simplify the business.
Excluding a £25.3mln gain from disposals, underlying pre-tax profit came to £357.9mln, a 2% year-on-year increase on a reported basis but a 1% decline on an organic basis.
Underlying operating profit increased 2% to £388mln thanks to a 10 basis points rise in the operating margin to 19.2%, but it was 2% below the company compiled consensus estimate.
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Underlying earnings per share increased 1% to 35p against expectations of 36p.
Revenue lifted by growth in civil aerospace and military
Organic revenue rose 2% to £2.90bn on the back of a 6% rise in orders as growth in civil aerospace and military offset continued weakness in the energy market.
Meggitt raised its full year dividend by 5% to 15.85p as it cut net debt by 18% to £964.8mln and free cash flow jumped 42% to £186mln.
“Following organic order growth of 6% in 2017, we expect these trends to continue into 2018, with expected revenue growth of 2% to 4% and continued operating margin improvement, prior to the impact of new accounting standards,” said Tony Wood, who joined in January to replace chief executive Stephen Young, who steps down in April.
The company expects margins to improve by at least 200 basis points by 2021.
Shares fell 3.6% to 449.4p in morning trade.
Liberum leaves Meggitt at 'sell'
Liberum repeated a ‘sell’ rating on the stock with a target price of 410p, saying underlying operating profit and EPS were both below its forecasts.
“Shares have fallen 11% since November and now trade on a calendar year 2018 enterprise value/earnings before interest and tax of 12.5x, with a free cash flow yield of 3% and a dividend yield of 4%.”