Exane sees downside at Meggitt despite bid speculation
Exane BNP Paribas has kicked off coverage of aerospace engineer Meggitt with an 'underperform' rating despite bid speculation and an active share buyback programme supporting the stock over the last year.
Aerospace and Defence
10,853.21
16:54 03/05/24
FTSE 100
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16:59 03/05/24
FTSE 350
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16:54 03/05/24
FTSE All-Share
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Meggitt
798.80p
16:52 12/09/22
The broker set a 475p target for the shares, suggesting 15% downside from current prices.
"Buoyed by bid-spec, the company has outperformed this past 12 months and trades close to its relative highs. However we don’t believe that the group’s earnings quality and increasing pressure on an already weak cash conversion support a takeout above the current price," Exane said.
The broker reckons that the gap between headline earnings and cash generation is set to widen over the next two years with investment spending set to rise significantly. Accelerating organic sales growth will also be insufficient to offset this.
Furthermore, Exane said that Meggitt's share buyback has provided significant support to the shares over the last month and that a slowdown in buying "would be a catalyst for underperformance".
The stock was down 3% at 546p by 11:00.