- Business Summary: Meggitt PLC is one of the foremost companies which engage in the design and manufacture of components and sub-systems for various sectors like aerospace, defense, medical, energy, industrial, automotive and other specialist industries and markets.
- History of the company: The Company was founded in the 1850s in the United Kingdom. It started operations as a machine tool business. The company went public 1947. Over the years the company has expanded its base of operations by acquiring various other businesses and companies. By using this strategy Meggitt has not only been able to increase its presence in various sectors but has also been successful in increasing its span of reach in different markets.
- Company Operations: The Company has three main divisions and its operations are distributed into these three: Aerospace Equipment, Sensing Systems and Defense Systems. As the name of the division suggests the company manufactures specialized products to supply to buyers in these three sectors of the market.
Business Description
Meggitt PLC has been active in the field of designing and manufacturing of components for the aerospace, defense and energy markets. The company had a market capitalization of a little over 1.75 billion GBP in 2009 and over the years it has been building its capacity to reach out to a larger number of people. The company started out as an aviation tools manufacturer and in 150 years the company has emerged as a market leader. Meggitt and its associate companies have been responsible for some of the best innovations in the world which we have grown accustomed to today like components for the double decker buses in London, components for the best airline services Concorde etc.
Stock performance and value to shareholders in recent history
If one considers the performance of the company over the last 5 years then one sees a trend of increase over this time span. A close analysis and inspection of the share price history reveals that there have been very few instances in the last five years when the company saw a dip in its share price. Over all the performance has been very good of the company. Over the last few trading days the company has seen an increase of almost 2.3% - 4% in the share price. With the end of the third quarter in sight this could mean a phase of growth for the company because such a positive growth will instill confidence in the minds of the investors who would then be inclined to transact with the company.
Analysts in the market are optimistic about this trend which the company has been following. Some of the analysts are of the opinion that the company has been outperforming itself and this could be a good time to hold on to shares of Meggitt PLC for a few more weeks before one decides to sell them. Some of the biggest news that has created a positive image for the company and also caused the share prices to rise have been the alliance created between National Technical Systems and Meggitt PLC for five years.
Through this agreement the company will be able to provide services on a wide range to various businesses. Meggitt also bagged a multimillion dollar contract from Assault for braking and control systems which has been a big win for the company. Towards the end of last financial year the company had also won a similar contract for a huge order of thermal management company for its engine variants. In light of all these agreements and orders it can be expected that the company is on the right track. The steady increase in the share price also vouches that the company is seeing a period of growth and expansion as it enters new markets and creates stronger bonds with companies of the current industries it serves.
Industry Overview and Competitive Positioning
Meggitt PLC operates in a highly competitive industry. The engineering products industry has seen many key players, manufacturers and suppliers amongst which Meggitt PLC has managed to create a very strong position. However it faces strong competition from Smihs Group Inc and Rockwell Collins Inc. Major customers of the company include the US Department of defense, Airbus, Boeing and Lockheed Martin.
Investment Summary
The company first went public in the year 1947. Today the company has issued millions of shares and I the last five years the performance of the company has been exceptional. It has provided shareholders with a steady and positive return on investment and the earnings per share of the company have also increase steadily over the last five years. The projections that are being made for the performance of the company also indicate a positive growth trend.
Trend of Earning Per Share
In 2010, the EPS that Meggitt PLC gave out to its shareholders was 27.80 p. This was an increase from the year before that i.e. the year 2009 when the EPS of the shareholders was 25.30 p. In the next year, the company gave out an EPS of 31.90 p which was an increase of almost 26%. In the year ending 2012, the company declared and gave out an EPS of 36.20 p which was yet again an increase of 13.4%. This trend indicates that the company is aggressively working towards providing the shareholders with a positive and increasing return on their investments in the company.
The predictions for the year 2013 indicates that the company will be able to declare an EPS of 36.82 p. Although his is only a very slight increase in comparison to the EPS in the year before that, but it shows stability in the operations of the company and also indicates that the company has managed to establish clients and customers from whom it is getting steady orders for business. The alliances that the company has made with manufacturing companies in this year will also go a long way in helping the company increase its revenues which will ultimately result in increased earnings per share for the shareholders.
As the chart shared above denotes the company has maintained an increasing trend of EPS for its shareholders and it is predicted that in the next two years as well the company will be able to maintain a similar trend. This means that the shareholders can expect to gain from their shares and earn a steady return on their investments.
Financial Analysis
For the purpose this paper analysis of the last five years of financial data of the company was done to understand the steps that the company has taken to create value for its shareholders. In order to gain a better understanding in this regard, the earnings per share of the company was evaluated, which has been shared above. In addition to that, the cash flow statement of the company for the last 10 years, based on the discounted cash flow method was studied.
Earnings
The trend of revenue and earnings of the firm has seen a steady increase in the period of last five years. Although some of the expenses can be seen as high, the revenue and earnings have seen growth and have increased overtime. In regard with the future and growth prospects, the company has bagged major contracts which ensure that the increase in revenue growth and earnings will increase over the next two years as well. One major contract is spread over the duration of next five years and so it can be expected that in the next five years the company is sure to see at least a period of stability. This also means that the shareholders will be able to earn a steady return on the shares of the company.
Cash Flow
For the purpose of this paper the discounted cash flow method has been used and the same has been made for a period of ten years. As per the cash flow statement of the company, Meggitt has been maintaining positive cash flow in the last five years. The main source of inflow of cash for Meggitt has been from operating activities as the company has been actively engaged in investment and financing activities which have resulted in a cash outflow. However, this shows that the company has limited amount of idle cash and that the cash reserves are being utilized appropriately. This is a positive indicator for the company and goes to show that the money invested by the shareholders is being utilized appropriately.
The discounted cash flow prepared for the period of ten years reveals that in a period of steady growth the company can expect to earn profits and maintain positive cash reserves which are set to increase overtime. Considering the capital expenses, depreciation and taxes payable, the company would still be able to earn profits which can then be passed on to the shareholders.
Net Asset Value
In relation to a company, the net asset value is the value of the company’s assets less the value of its liabilities. From this perspective the NAV of Meggitt PLC can be considered as strong because the company has been increasing its asset base year on year. A strong working capital and steady revenues as well as investment in fixed asset shows that the financial position of the company is strong. However, in the last year the company had seen a decrease in its working capital availability which could indicate that reserves of the company have been held up in investments and transactions. The company needs to ensure that it has a strong NAV in the next five years and maintain that position to be able to deliver value to the shareholders.
Capital Asset pricing Method evaluation
If one was to analyze the financial position of the company from the point of view of the CAPM model, one would find that the expected return of the company as per this model stands at 10.05%. This is a strong return rate which is likely to keep the shareholders engaged and satisfied with the performance of the company. At the same time, other investors would also project Meggitt PLC as a safe investment. This analysis is in congruence with the market perception about the company that Meggitt has a strong position at present and investors would do good to hold on to the shares of the company instead of selling them.
Investment Risks
Investors and share market analysts are of the opinion that at present Meggitt PLC is seeing a growth phase and this makes it a sound investment. For those who have already bought shares of the company, it is advisable to hold on to the shares and not sell them at the moment. For those who wish to purchase the shares of this company it is a good time invest as the shares are seeing a constant increase in their price. This makes Meggitt PLC a low risk for the next two years and a moderate risk in the five year span. But certain factors that can influence the workings of this company are the prices of raw material used to make the components, changes in the aerospace industry and energy industry and policies that influence the defense sector like defense budget, funds allocation etc.
Conclusions
This analysis of the financial position of the company and its financial history reveals that the company has a strong foundation of revenues and cash reserves which means that the investments made by the shareholders is safe. Forecasts reveal a 2.5% yield on dividends which can be seen as good news for investors and shareholders. Also the company has been in a position to deliver a return on capital invested of almost 76.6%. These are positive indicators for any company and in addition to a trend of increase in revenues and profit, it can be said that Meggitt PLC has managed to build a stable financial environment for itself.
The company has been a key player in the sector of engineering services and has built an excellent portfolio of customers over the years. This, in addition to the investment in new technology and new acquisitions that the company makes, has helped it maintain a position where it can diversify its interests. This is crucial for a company which has spread its operations on such a large scale. Its ability to deliver a positive return to the shareholders and investors which has also been increasing in the last five years show that the company has been successful in its endeavors.
References
http://meggitt.com/resources/Meggitt_PLC_Report_and_Accounts_2012.pdf
Annual Report for Meggitt PLC for the year ending 2012
http://uk.finance.yahoo.com/q?s=MGGT.L
http://www.meggitt.com/
Company website to learn about history and trends of the company in different sectors
http://www.bloomberg.com/quote/MGGT:LN
http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=10240&=&ac=
