Meggitt sees little sign of improvement

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The Independent Online
MEGGITT, the aerospace, controls and electronics group, has reported a further dip in profitability during the first half.

It said it saw few signs of improvement in its main markets but had decided to increase its interim dividend by 4.2 per cent to 1.25p.

Thanks to interest savings from a pounds 40m rights issue last year, pre- tax profits in the six months to 30 June showed a 3 per cent increase to pounds 12.6m. But earnings were 23 per cent lower at 3.7p a share, slightly down on the 3.8p earned in the second half of 1991.

Sales rose from pounds 151m to pounds 152.9m but operating profits fell 17 per cent to pounds 11.7m as margins tumbled from 9.4 to 7.6 per cent compared with 8 per cent in the previous six months.

The advance in pre-tax profits stemmed from a turnaround from interest payable of pounds 1.9m to a net credit of pounds 901,000. Meggitt began the year with pounds 22m in the bank but later spent dollars 53m ( pounds 28.5m) on Endevco, a US maker of sensors. It now has net borrowings of pounds 14.5m or gearing of 8.5 per cent.

Endevco will have its first important impact in the second half along with Micrelec, the loss-making supplier of electronic equipment for petrol stations, which Meggitt acquired through a pounds 17.3m agreed bid in May.

Ken Coates, chairman, said that while Endevco would make a contribution after financing costs in the second half, Micrelec would at best break even, leading to a small dilution of earnings. Longer-term prospects were good.

Both the energy and electronics divisions reported improved profits. The first was boosted by the acquisition of Howmar, a maker of gas processing equipment, but the division is seeing a higher level of inquiries. Electronics companies are witnessing a slow and steady improvement in trading.

Controls companies had a mixed half as Europe held up while the UK remained difficult. Aerospace profits retreated from the exceptional levels seen in the comparable half of 1991.

'Boeing may be cutting production schedules but they are placing more contracts for components with us,' Mr Coates said.

Analysts expect pre-tax profits of around pounds 26m this year. A p/e of nine at 71p, down 2.5p, is a discount to the market average. This reflects fears over Meggitt's exposure to aerospace, which accounts for a third of its profits.