Meggitt boosted by Merrill upgrade to 'buy'
Engineer Meggitt got a boost on Wednesday as Bank of America Merrill Lynch upgraded the stock to 'buy' from 'neutral' and lifted the price target to 530p from 490p.
Aerospace and Defence
10,597.35
17:09 25/04/24
FTSE 250
19,601.98
17:09 25/04/24
FTSE 350
4,434.34
17:09 25/04/24
FTSE All-Share
4,387.94
16:49 25/04/24
Meggitt
798.80p
16:52 12/09/22
The bank said it sees an attractive cash improvement story through to 2020, driven by gradual margin improvement and stabilisation in fixed/tangible investment.
Merrill said it sees around £304m of free cash flow to equity in 2020, which would correspond to an 8.7% free cash flow yield, which it reckons is attractive versus the civil aerospace peer group average of 7% in 2020.
The bank also pointed to the fact that aftermarket growth is improving, driving the potential for a re-rating.
"Following years of weak and volatile aftermarket growth, Meggitt introduced the Customer Services and Support (CSS) organisation in 2015. Management highlighted that this contributed positively to aftermarket growth for FY16, seeing 5.4% aftermarket growth versus market growth of 3.4%, after making good progress in limiting the headwind from surplus parts and increasing share of Maintenance, Repair and Overhaul activities."
Boa ML said if the new organization can continue to drive strong aftermarket performance, as demonstrated in 2015, versus years of volatility, this could drive a re-rating in the mid-term.
At 0952 BST, the shares were down 2.9% to 459.90p.