MGGT – Meggitt – some thoughts


Someone asked me what I thought of MGGT . I will qualify everything by saying that I am an awful person to ask! So please don’t take this as advice, or even informed. Seriously!

What they do according to Google Finance:

Meggitt PLC is engaged in the design and manufacture of technology products and systems for the aerospace, defense and other specialist markets, including energy, medical, industrial, test and transportation. Aircraft Braking Systems is a supplier of aircraft wheels, brakes and brake control systems. Control Systems is a supplier of pneumatic, fluid control, thermal management and electro-mechanical equipment and sub-systems. Polymers & Composites is a specialist in fuel containment, engineered aircraft sealing solutions and technical polymers, electro- thermal ice protection and composite structures and assemblies. Sensing Systems is a provider of sensing and condition-monitoring solutions for rotating machinery and other assets. The Equipment Group division supplies aircraft fire protection and control systems, avionics, combat systems, live-fire and simulation training, and heat transfer equipment.

MGGT has had a cracking run at the chart from the beginning of the year, which you can see:

You can see that momentum has been good just by looking at the charts. Not surprising then that it passes a couple of Stockopedia momentum screens.

The shares have been consolidating since a little into March, slowing a slight downward trend. there’s a pattern of lower highs and lower lows – a bearish signal. However, we could be seeing a flag, which is a continuation pattern – and hence bullish.

So which is it: bullish or bearish?

Looking at valuation metrics, MGGT is fairly middle-of-the-road in terms of PE ratios, expected EPS growth, and EV/EBITDA. Revenues are expected to grow at mid-single digit rates. So there’s nothing that “grabs” me as being an exciting opportunity. MGGT is a large company in the Footsie, and there’s little discussion of it on the boards. So I don’t think we’re going to see much action from here, if that’s what you’re looking for. I expect we’ll be in for a period of consolidation where it broadly follows the Footsie. Just my completely ill-informed guess, though.

I don’t think that they’ll be anything that will trigger a significant re-rating upwards.

Taking a look at the financials, I see that EPS has grown from 13.64p to 35.80p over the decade, with only 2 periods in which EPS were negative. On both occasions, the declines were less than 5%. Interest cover is 12, and gearing is 33%. This actually makes it look like a quality company at a reasonable price. It looks interesting for people following a Graham defensive-type strategy – and those people may want to dig a little deeper on this.

My expectation is that MGGT would make for a solid portfolio choice, with the usual positive or negative earnings surprises that will cause the share price to over- or under-perform. MGGT is a fairly low yielder, so I don’t think it would appeal to the dividend crowd, who will be able to obtain higher yields from companies like Tesco, Brit Amer Tobacco and Vodafone.

Tony Reading wrote about MGGT today on Motley Fool, and is bullish on the sector, and notes that Neil Woodford is overweight there.

In summary: I think it is a good-quality company where the momentum has likely died out – at least relative to the broader indices.


About mcturra2000

Computer programmer living in Scotland.
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