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Berenberg downgrades Meggitt on 'constrained' valuation
10th Mar 2020 09:57
(Sharecast News) - Berenberg downgraded its stance on Meggitt to 'hold' from 'buy' on Tuesday and slashed the price target to 490p from 695p, arguing that the valuation is constrained.
Berenberg said Meggitt's 2020 guidance was slightly cautious in recognition of COVID-19 risks and the slower recovery of the 737 MAX programme, but pointed out that air traffic has since collapsed.
The downgrade of Meggitt was part of a broader note on the aerospace and defence sector in which Berenberg also reviewed MTU Aero Engines and Safran.
The bank said: "We are extremely concerned at the scale and pace of the decline in global air travel. We do not know how long it will last but it seems clear from recent airline reports and the latest (dire) air traffic forecast from the International Air Transport Association (IATA) that COVID-19 will present significantly more of a challenge to aviation than any previous demand shock.
"The situation is fast moving and it is too early to know what the impact might be. However, we are bearish and in this note attempt to derisk our forecasts for the aftermarket (AM) stocks that are most exposed to air traffic: Meggitt, MTU Aero Engines (MTU) and Safran."
Berenberg said it expects Meggitt's valuation to be capped in the short term while air traffic data remains grim, hence the downgrade.
Longer-term, however, it said Meggitt's fundamentals are "attractive" and once the industry has more clarity over the impacts of the coronavirus outbreak, it expect the shares to rerate.
Berenberg noted that the stock is down 26% year-to-date and 27% in the last month, despite the strong 2019 results out on 25 February.
Berenberg said Meggitt's 2020 guidance was slightly cautious in recognition of COVID-19 risks and the slower recovery of the 737 MAX programme, but pointed out that air traffic has since collapsed.
The downgrade of Meggitt was part of a broader note on the aerospace and defence sector in which Berenberg also reviewed MTU Aero Engines and Safran.
The bank said: "We are extremely concerned at the scale and pace of the decline in global air travel. We do not know how long it will last but it seems clear from recent airline reports and the latest (dire) air traffic forecast from the International Air Transport Association (IATA) that COVID-19 will present significantly more of a challenge to aviation than any previous demand shock.
"The situation is fast moving and it is too early to know what the impact might be. However, we are bearish and in this note attempt to derisk our forecasts for the aftermarket (AM) stocks that are most exposed to air traffic: Meggitt, MTU Aero Engines (MTU) and Safran."
Berenberg said it expects Meggitt's valuation to be capped in the short term while air traffic data remains grim, hence the downgrade.
Longer-term, however, it said Meggitt's fundamentals are "attractive" and once the industry has more clarity over the impacts of the coronavirus outbreak, it expect the shares to rerate.
Berenberg noted that the stock is down 26% year-to-date and 27% in the last month, despite the strong 2019 results out on 25 February.