Meggitt jettisons ballast in bid to lift shares
Chief executive Stephen Young thinks the company might be at the turning point
Meggitt knows a lot about what keeps aircraft in the air. It has been in the aviation business since 1860, when it supplied altimeters to hot-air balloonists.
However, it seems to have lost the knack of keeping its own shares aloft. After a series of profit warnings, Meggitt shares are at 468p, way below the early 2015 heights of 550p. That is despite activist Elliott Advisors arriving on the share register this summer.
Meggitt, which supplies parts and materials for new aircraft, spares to old ones and systems to the energy industry, has been knocked off course by the oil price fall and customers cutting budgets just as its own spending peaked.
Last year, the group spent more than $500m on acquisitions and a tenth of its £1.6bn revenues on research and development. By the half-year to June its net debt had risen to 2.6 times earnings before nasties.
This year, Stephen Young, Meggitt’s boss, has been tipping out the ballast. He has cut costs, reduced debt, rationalised plants, and pushed further into faster growing areas in civil aviation and sold noncore divisions.
On Wednesday, he sold Meggitt Target, which makes smart missile targets, for £57.5m in cash to rival Qinetiq.
Now he thinks Meggitt might be at the turning point. End-of-year net debt will be comfortably between 1.5 and 2.5 times earnings before tax, interest, depreciation and amortisation.
The number of new aircraft coming into service is above trend, pressure on defence spending is lifting, cash generation is strong and returns from acquisitions are accelerating. Meggitt hasn’t had to warn on profits since October last year. Hurrah.
Mr Young has more to do to cut costs and improve the efficiency of supplies. The energy division is still a drag on performance. The shares are unlikely to rocket into the air. But, at about 14 times next year’s forecast earnings, they should drift up.
Bigger, better British pay
For the 51 Footsie chief executives who publicly backed the “Britain Stronger In Europe” campaign, it is perhaps just as well that its successor group, Open Britain, is not holding a Christmas party, writes Matthew Vincent.
Its website lists only a get-together at the Fox & Firkin in High Street, Lewisham, but this seems likely to be about as festive as the group’s “victory” party in June.
Since that fateful summer night, the 51 — and, indeed, the other 49 — have also seen their holiday spending power hit by a slump in sterling, with those from overseas most exposed.
Three weeks ago, this column calculated the biggest currency-related pay “cuts” since the Brexit vote: €230,000 for Kingfisher’s Véronique Laury; NZ$1.1m for RBS’s Ross McEwan, $2.3m for Prudential’s Mike Wells; and Rs300m for Reckitt Benckiser’s Rakesh Kapoor.
However, a new pan-European study at least offers some tidings of joy. From research taking in 701 companies in six countries, Xavier Baeten and Said Loyens of Belgium’s Vlerick Business School have drawn two conclusions.
UK chief executives earn more than their continental counterparts, and their pay is driven by one overriding factor: not margins, not profit, not price change, just relative company size.
Last year, FTSE 100 chief executives enjoyed the highest total remuneration of those studied: on average, €4.4m.
Gender, age and nationality, as any Open Briton would hope, played no part in this. These factors had standardised beta coefficients — a measure of their predictive powers, out of 1 — of 0.005, 0.038 and minus 0.082, respectively. But nor was profit a driver: earnings margin had a coefficient of minus 0.045. By contrast, market capitalisation was everything: at 0.783.
Conveniently, change — rather than ranking — of market cap had little effect: a coefficient of just minus 0.018. All of which may explain why Footsie CEO pay rose 9.6 per cent in 2015 while the index was down 4.9 per cent.
Perhaps those 51 captains of industry should have gone with a simpler rebrand: Stronger Than, not Stronger In.
Ace manager aced
Mark Lyttleton, ace fund manager at BlackRock, has just been given a jail term for insider dealing. But he was not as ace has he seemed. He lost money buying call options in Cairn Energy, having heard that the oil group had struck oil in Greenland.
It turned out that Cairn hadn’t found oil of a quality or quantity to be worth recovering. Mr Lyttleton lost £10,000 on the punt.
He made a classic rookies’ error — assuming it is enough to find oil to make out like a bandit. As Molesworth would say, any fule kno’ that the way to make it rich is to tap investors for the millions needed to extract oil and take a cut.