Investec cuts Meggitt's rating to 'add' from 'buy'

Meggitt’s shares dipped on Tuesday after Investec cut its rating to ‘add’ from ‘buy’.

Investec said it changed its rating on the aerospace engineer’s stock “given recent share price appreciation”.

The broker raised its target price to 440p from 420p, saying that management’s actions to address an evolving aftermarket and a conservative resetting of expectations have helped restore confidence.

The recently created Customer Service and Support (CSS) organisation “should help address the challenges to the aftermarket business model from increased use of second hand spares by airlines and lessors”, Investec said.

Investec raised its 2016 earnings per share forecast by 4% to reflect updated profit and cash guidance.

“The Civil aero aftermarket is the largest single driver of profit growth,” said Investec analysts Rami Myerson and Chris Dyett.

“We assume civil aftermarket grows by 3% on an organic basis in 2016 and accelerates to 5% in 2017, as CSS drives faster aftermarket growth.”

In February’s 2015 full year results, Meggitt said the outlook for our civil markets was encouraging, with growth in the production of large jets. The group expects organic revenue growth in 2016 of low single digit percentage points, in line with the guidance given in December.

The acquisitions of EDAC and the composites businesses of Cobham in the fourth quarter are expected to boost revenue.

Shares fell 1.17% to 415.60p at 1041 GMT.