Meggitt
5% Expected annual organic growth
Meggitt has made clear that, with a dearth of appropriate and properly priced acquisition targets out there, the company would rather its strong cashflow was returned to shareholders, while its level of borrowings is probably not high enough in these low interest rate times.
That debt was refinanced last year. The company is, therefore, at the start of a share buyback programme that will stretch through this year, one that analysts expect to run to £230 million to £270 million, or perhaps 7 per cent of the share capital.
The latest purchase is not going to change any of this, being merely a useful bolt-on to the energy business that the company has been expanding to lessen its dependence on commercial aircraft programmes by Boeing and Airbus and on defence. Meggitt is buying Precision Engine Controls Corporation from United Technologies for $44.2 million, or about 8.5 times earnings before tax, interest and other one-offs. Precision is based in San Diego, California, and makes valves for small-frame gas turbines, extending the company’s reach from turbines derived from aircraft engines to ones specifically designed to generate power. The deal should add to earnings from the off.
Meggitt’s latest trading statement showed strong growth in the supply of original equipment to those two aircraft makers and some recovery in the aftersales market, which had been hit by destocking as airliners realised that they had been too optimistic in ordering as the industry came out of the financial downturn.
Defence achieved a similar return to growth, but the energy side, about 10 per cent of the group, was hit by problems in Brazil, where it supplies Petrobras, the state oil company. Its partner there had hit financial difficulties and Meggitt decided, therefore, to slacken off on work it puts through the venture, pushing about $10 million of revenues out of 2014 and into 2015.
The company is one of those global British engineers that have steered carefully through the downturn. It is well positioned to grow revenues at about 5 per cent a year. The shares, off 4½p at 509p, sell on 14 times earnings. Worth holding for the long term.
My advice Buy long term
Why Shares have the support of a buyback programme this year, while the growing energy side lessens reliance on aerospace and defence
Senior
Share price rise since August 17.4%
Shares in Senior are up by almost a fifth since I tipped them in August, after news of the retirement of Mark Rollins as chief executive.
This is no reflection on his abilities; in his 17 years with the company, Senior has been transformed from a staid industrial conglomerate into a supplier of advanced components for the aircraft and automotive industries. It has, though, left the shares looking a little toppy.
Now Senior has found Mr Rollins’ successor. David Squires is joining from Cobham, another of those global engineers that has been through a transformation into a producer of higher-margin, high-tech products.
Senior, like Meggitt, has a strong position supplying the big aircraft manufacturers. Some have wondered if consolidation in the industry might see the company being taken over, though I am inclined to doubt this. There have also been questions raised over possible rationalisation of its 32 plants.
It is too soon to assess Mr Squires’ future strategy. On 14.5 times this year’s earnings the shares, off 4½p at 303p, might be due a bit of profit-taking.
My advice Take profits
Why Shares have advanced strongly and are highly rated
Clarkson
£281.2m Cost of RS Platou deal
Few takeovers are truly transformational and those that are may well be for the wrong reasons, transforming a healthy business into one rather less so.
There is reason to believe, though, that Clarkson’s decision to buy the Norwegian RS Platou business before Christmas may be the real thing. Clarkson, as I have suggested before, is a shipping broker not well understood in the City, although the shares have recovered strongly since the depth of the financial crisis and what was the worst time for the world shipping industry for three decades.
Platou, which has a heavier involvement to the offshore oil and gas industry and to investment banking that facilitates the purchase of vessels, is being bought for £281 million, three quarters of which is in new Clarkson shares. This leaves the vendors with more than 20 per cent of the equity, incentivises them and locks them in for up to three years.
Clarkson’s argument is that over the past few years there has been a flight to quality and to the big names in shipbroking. Clarkson and Platou are two of the best known. It might seem an odd time to place a bet on oil and gas, but, while exploration activities are being scaled back, the rigs are still producing and need supply vessels to keep doing so.
A brief trading statement reaffirmed yesterday that both businesses are performing well, while the deal requires only the blessing of financial regulators to complete. Clarkson shares, up 28p at £19.03½p, sell on 13.5 times’ earnings and look a good prospect.
My advice Buy
Why Excellent prospects from the Norway acquisition
And finally . . .
Investors in Gulfsands Petroleum might be in need of some good news for a change. The company, as my colleague Gary Parkinson reported on Monday, is in the middle of a complicated squabble with an activist shareholder amid concerns that it might be taken out on the cheap, having lost more than three quarters of its stock market value over the past two years. Now it has reported a gas-bearing reservoir at a Morocco well of “excellent quality”. Not that it seems to have done the share price any great favours.
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