Broker snap: UBS cuts Meggitt to 'neutral'

4th Feb 2013 09:05

UBS cut its recommendation for aerospace engineer Meggitt from 'buy' to 'neutral', causing shares to fall on Monday morning.The broker recently moved its 2012 earnings before interest, tax and amortisation (EBITDA) forecast down from £401m to £391m, in line with consensus, "because of lower commercial aftermarket expectations".When the company reports its full-year results on March 5th, the broker said it does not expect the firm to surpass consensus estimates and doesn't anticipate any material upgrades to 2013 numbers.Looking to 2013, we expect continued strong growth from the Energy market, where Meggitt equipment helps fuel efficiency, but is only c10% of group sales, a decline in Defence (40% of sales, but less of profit) and we hope to see growth return in Commercial (45% of sales, but est 55-60% of profits). However, the lack of anticipated growth in commercial in 2012 is a cause of concern," UBS said.Furthermore, while Meggitt's five-year revenue growth target is 6-7%, analysts believe that the top line with likely increase by 5-6% over that period. Meanwhile, they said that there is little room for margin expansion given the current 24-25% levels.The broker has raised the target price for the shares from 440p to 450p, but removed the stock from its M&A watch list "on lack of value-creation grounds".Shares were down 1.70% at 433.9p by 10:12 on Monday.BC