August 7, 2018 / 9:23 AM / 4 months ago

UPDATE 1-Meggitt boosted by strong aerospace demand, sees composite unit improving

(Adds CEO, analyst comment, share price)

LONDON, Aug 7 (Reuters) - Meggitt is on track to meet upgraded guidance after seeing strong demand for its wheels, brakes and other aerospace parts, the British engineering firm said on Tuesday, adding its composite business was also showing signs of improvement.

Meggitt said its first-half result of 9 percent organic revenue growth gave it confidence in the future. Last month it raised its 2018 forecast for organic revenue growth to 4-6 percent from 2-4 percent.

First-half results were buoyed by strong demand from civil aerospace customers while higher oil prices spurred demand from the energy sector.

The company also said that Meggitt Polymers and Composites (MPC), a part of the business that makes sophisticated engine parts which can withstand high temperatures from composite materials, was turning around following a period when it has dragged on profitability.

“The good news is that the second half we’re certainly seeing improvements,” CEO Tony Wood said in an interview on Tuesday.

It raised its interim dividend by 5 percent to 5.3 pence.

Meggitt said the challenge of getting the manufacture of composite parts right had resulted in additional costs, such as hiring more people, but in the longer-term the MPC business would provide it with an important platform for growth.

Wood said that aircraft engine parts would increasingly be made from composite materials rather than metals due to weight, cost and performance advantages.

“There are very few people out there that can do it...on that basis we’re building, we believe, a very strong business for the future,” he said.

Shares in Meggitt were down 1.5 percent to 561.7 pence at 0835 GMT, having risen 15 percent since it raised its revenue guidance on July 2.

“Following recent strong performance, we suspect upside in the shares is capped without further upgrades,” Morgan Stanley analysts, who have an “equal-weight” rating on the stock, said in a note.

“The debate now turns to 2019 margins, and how much progress towards the 2021 target of 19.9 percent can be made.”

Meggitt expects an 2018 operating margin at the lower end of a guidance range of 17.7 percent to 18 percent due to the impact of its MPC unit, it said last month. (Reporting by Sarah Young; editing by Costas Pitas and Jason Neely)

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