Bottom Line: Meggitt leaves market chewing its pencil

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The Independent Online
WHATEVER can be said for FRS3, the new financial reporting standard, it does not make light work of understanding yesterday's 1992 figures from the aerospace engineer and controls group Meggitt.

Headline pre-tax profits jumped 23 per cent to pounds 23.0m, earnings per share slipped from 6.9p to 6.6p (reflecting a pounds 40m rights issue in September 1991) and the dividend was 5 per cent higher at 3.78p.

Behind those figures lies a complicated mish-mash of losses on disposed businesses, provisions for further losses, a pounds 3.5m swing from interest payable to receivable, provisions written back, profits from acquisitions and a bit of profit share for good measure.

Margins in all four businesses remain under pressure but a good geographical spread means pain in one part of the world can often be mitigated elsewhere.

Meggitt has a worrying exposure (almost half of sales) to the aerospace industry and a lot of that goes to the US, where a strong first quarter is showing signs of faltering. Its controls division depends too much for comfort on distribution in a slowing Europe and its water treatment services to the oil exploration industry will continue to be hit by an absence of North Sea projects.

That said, Meggitt's balance sheet is in good nick after the rights issue, with gearing of 14 per cent likely to be eliminated this year. Cash generation is healthy enough and the order book, up 15 per cent in some areas, is a comfort. The hit from getting rid of the loss-makers will also not recur.

Still chewing its pencil yesterday, the market left Meggitt's shares broadly unchanged at 102.5p. Tentative stabs suggest pre-tax profits this time of pounds 28m and earnings per share of about 9p. A p/e of only 11, even after a 50 per cent jump since last September, is on the face of it not demanding. With so many imponderables in the figures and concerns over its main markets, however, it is probably high enough.