SocGen cuts Meggitt to 'sell' after shares leap on vaccine hopes

Societe Generale downgraded Meggitt to 'sell' after the company's shares jumped following the news that an effective Covid-19 vaccine was in the pipeline.

The aersopace engineer's third-quarter update on 10 November showed business picking up and the company reinstated guidance. SocGen said the statement should have soothed investor concerns about the company's balance sheet and that it had made good progress on spending cuts.

Meggitt's guidance for annual earnings of £180m to £200m is wide with uncertainty hanging over commercial aerospace, analyst Zafar Khan said. He also pointed out that the earning margin was lower than expected as airlines deferred purchases of spare parts.

Meggitt shares jumped by a third in the two days after Pfizer said its coronavirus vaccine was effective on hopes for a revival in the aviation industry.

Khan cut his earnings forecast, which was 15% above consensus, by 30% to reflect the company's new guidance and reduced his recommendation to 'sell' from 'hold'. He nudged up his target price for Meggitt shares to 309p from 306p.

"Although a Covid-19 vaccine could accelerate the civil spares recovery, we think new aircraft deliveries are unlikely to reach the pre-Covid levels for quite some time," Khan wrote in a note to clients. "Following a sharp spike on the vaccine news, the shares are trading well above our revised target price."

Meggitt shares fell 3.1% to 388.5p at 12:40 GMT.