MIDAS SHARE TIPS UPDATE: Shares in aviation group Meggitt still have a way to fly
Cheer in the stock market might be hard to find right now, but those who took heed of Midas’s advice to buy aviation engineering group Meggitt at £4.37p in April last year are sitting on a profit.
The shares closed at £4.97 on Friday, and many brokers believe they have further to go. Last week, Goldman Sachs raised its target to £6.26p, having already raised it before Christmas in expectation of ‘strong growth’.
The Dorset-based firm, which can trace its roots back 150 years, has much to recommend it in turbulent times. The parts it provides to both civil and military aircraft have become vital to safety, and its clients include all of the major aircraft manufacturers including Airbus, Boeing and Bombardier.
Hot tip: Meggitt makes parts for military and civil aircraft
If you’ve been in a plane recently, chances are that Meggitt has been involved in providing some of the wheels, seals, valves and brakes, while the firm’s technology also ensures fuel tanks don’t burst into flames on impact.
Meggitt has the benefit of three diverse income streams, which helps to stabilise results if demand in one area dwindles. The defence sector provides a third of sales, while 55 per cent comes from commercial aircraft and the remainder comes from the energy industry.
Once Meggitt has provided the parts for an aircraft, it tends to be involved in the maintenance and replacement of them for years to come, providing revenue predictability. That doesn’t mean Meggitt has been immune to headwinds.
The firm has struggled to rein in costs in some divisions, especially the one dealing with polymers and composites, and this has dragged on shares in recent months.
Chief executive Tony Wood said in August, when the company announced its half-year figures, that this was turning around. Expect further updates on this next month, when the firm announces its fullyear figures.
Midas Verdict: With a healthy dividend yield of over 3 per cent on estimated figures for 2018 and continued progress on reining in costs, it is worth holding on to Meggitt at this level to see if it has further to fly.