Meggitt predicts organic slowdown, but shares rise on buyback plan - UPDATE
Engineering group Meggitt said organic growth will slow towards the end of the year but the stock rose strongly on Wednesday after the announcement of a share buyback.
Meggitt, which works in the aerospace, defence and energy markets, said it would commence a buyback of up to 79.7m shares on Thursday. The aim of the repurchase plan is to achieve a net debt-to-operating profit ratio at or slightly above 1.5 by the end of 2015, which analysts estimate equates to up to £250m.
The company, which surprised the market in August with a profit warning, said that trading in the third quarter was "broadly in line with expectations" with organic revenue growth, which excludes the effects of mergers, acquisitions and foreign exchange, at 5%.
This marks a turnaround from the 3% decline in underlying sales in the first half after very strong third-quarter growth in civil original equipment (+18%), a continuing recovery in civil aftermarket (+4%) and a return to growth in military (+5%).
This helped to offset a 7% fall in the energy division on the back of a previously announced deferral of revenue into 2015.
Nevertheless, on a reported basis revenues fell by 2% in the third quarter as organic growth was outweighed by the adverse impact from currency movements, acquisitions and disposals.
Meggitt said it expected a further improvement in the civil aftermarket over the remainder of 2014, but growth is expected to slow. Meanwhile, arrears relating to the lack of availability of US government inspectors is still having an impact on the military division.
Furthermore, Meggitt said that the continuing financial difficulties of its Brazilian local content provider in its energy business means that an additional $10m of revenue will be delayed until 2015.
"As a result of the above, the 5% organic growth rate seen in the third quarter is expected to moderate in the final quarter," the company said.
"Based on current projections, and taking into account the continued uncertainty in military markets and timing of energy contracts, the group expects percentage organic revenue growth in the low to mid-single digits in 2015."
Nevertheless, the stock was up 5.9% by 466p by 11:04.