Is stability returning to aerospace in Dorset?
Cobham and Meggitt Q1 FY17
Meggitt and Cobham both provided in line trading statements this morning, although the current position of both companies is somewhat diverged.
Cobham is in the middle of its underwritten rights issue and the new management team’s review of group structures, process and positioning. Whilst the Q1 trading is in line with expectations, with management noting the small weighting of the quarter to full year profitability, at least there were no more warnings. The rights issue should do the heavy lifting on the financial position, but the new management team has some way to go to restore the credentials of the company, which at its core retains high quality engineering assets. Management should outline the next steps with the interim results in the summer, which could be a catalyst for improving optimism.
Meggitt shares are up 14% over the last year and 3% since the start of 2017. Whilst a top line organic contraction of 1% is hardly likely to be popping corks, the fact that both civil aerospace original equipment and aftermarket sales rose 3% is a positive. Although offset by military aircraft revenue declines and the continued oil market depression slowing Heatric compact heat exchanger sales further, guidance for FY organic growth has been maintained at 2-4% implying an acceleration through the second half of the year. The small acquisition of Elite Aerospace during the quarter also indicates Meggitt retains the ability to augment its growth with appropriate, value creating opportunities.
As Huey Lewis once sang “It’s hip to be square”, that is of course provided the hole is not round.
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