February 26, 2019 / 9:14 AM / 4 months ago

Meggitt forecasts steady margin improvements, outlines Brexit plans

LONDON (Reuters) - British engineering company Meggitt said it would take about two years before its operating margins significantly improve, sending its shares sliding after a recent strong run.

A key supplier to Airbus and Boeing, Meggitt also set out its plans for Brexit, including stockpiling parts, hiring extra customs officials and applying to be recognised by the European safety body to continue operating in the bloc.

It said it had made these changes in case Britain leaves the European Union on March 29 without a trade deal, and as its customers shift spare parts between its distribution centres in case a disorderly exit leads to delays at ports.

“Given that less than 5 percent of the group’s revenues are transacted between the UK and the EU, Brexit is not considered to be a significant risk for the group in 2019,” it said.

Its shares were hit by the margin guidance, falling as much as 10 percent at the open before recovering to be down 2 percent at 1000 GMT. The stock has risen 15 percent since the start of 2019.

Analysts said the group’s 2018 results, showed 9 percent organic revenue growth, were in line with forecasts. Meggitt said it expected organic revenue growth to slow to 3 to 5 percent in 2019.

For underlying operating margins, it forecast a flat to 50 basis point improvement from the 2018 figure of 17.7 percent.

The group, which also supplies parts such as wheels and brakes for military fighter programmes, said it was confident it would deliver its 2021 margin target of at least 19.9 percent, meaning the improvement will need to come in 2020 and 2021.

Meggitt’s margins have been dragged down by the Meggitt Polymers and Composites (MPC) unit, part of the business that makes sophisticated engine parts which can withstand high temperatures from composite materials.

“While the margin guidance may disappoint more bullish forecasts, we view the guide as consistent with previous commentary for gradual improvement in MPC margins in 2019, and that progress towards the mid-term target of 19.9 percent would be more heavily weighted to 2020 and 2021,” Morgan Stanley said.

Meggitt had a market value of £4.4 billion before Tuesday’s results.

Reporting by Kate Holton; Editing by Louise Heavens and Edmund Blair

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