N+1Singer highlights tough defence outlook after GKN warning

25th Feb 2014 11:04

A trader at N+1Singer highlighted more bad news in defence after engineer GKN said demand for military aerospace kit was likely to keep falling.GKN said military spending remained under pressure, largely driven by cutbacks throughout the USA and Europe, with the ramp-up of new programmes being delayed and overseas military operations reduced.GKN said: "In aerospace, commercial aircraft production should continue to grow whereas military demand is forecast to decline."N+1Singer's Jamie Constable pointed out that GKN's announcement followed news of big cuts in US military personnel, a statement about potential irregularities in defence group Cobham's Asian arm and a downbeat set of results from Rolls-Royce earlier this month.Constable acknowledged that GKN Automotive was going well, as well as its civil aerospace division, which should be positive for industry suppliers Trifast, Bodycote and Senior.But he added: "The order books are where you need to focus. Another warning to come from Rolls Royce? I wouldn't be surprised."Other brokers were positive on GKN despite the engineer posting a 15% fall in annual reported pre-tax profit to £484m due to currency factors.Investec said: "GKN's FY13 results are reassuringly solid and the outlook appears consistent with our expectations. We expect to tweak forecasts for FX but otherwise the progression we forecast for FY14E looks achievable."Canaccord Genuity kept its 'buy' recommendation on the stock and a 500p target price, saying GKN's outlook was encouraging.GKN's shares fell 9.4p or 2.3% to 405.5p at 11:19 in London.PW