Citi stays at 'buy' on Meggitt, says market too downbeat on long-term prospects

Analysts at Citi reiterated their 'buy' recommendation for shares of aerospace and defence subsystems manufacturer Meggitt, telling clients that markets were too downbeat on long-term growth in the sector and the company's competitive position.

Although they cut their 2020 forecast for air traffic growth by half and projecting "a greater societal impact of 10% below the long-term trend", they estimated that markets were discounting further drops in traffic beyond 2020 from those already depressed levels.

Citi on the other hand was anticipating a long-term rate of growth in civilian after-market sales of 6%.

The broker also broached investors' concerns regarding the "key" risk that increased jet retirements would result in more used serviceable material parts becoming available.

"Although Meggitt is not immune, there are some key differences to when this was previously an issue for the company," Citi said.

Valuations were also "undemanding", Citi said, what with the shares trading on an enterprise value-to-earnings before interest, taxes, depreciation and amortisation of five to six times for 2022 and 2032.

Only Rolls Royce and Airbus "where we expect the recovery to take longer" were less expensive, Citi said.