Broker tips: Meggitt, Travis Perkins
Last week's full-year guidance upgrade over at Meggitt was seen as a "turning point" for the aerospace and defence firm by analysts over at Berenberg.
Berenberg said the raised guidance brought about a significant change to the Meggitt investment case as forecast momentum had finally turned positive after five years of "uninspiring" financial performance.
Importantly, Berenberg pointed out that Meggitt's upgrade was driven by a combination of factors including strengthened end-markets improved operating performance and reduced business risk - a set of favourable trends the broker believes will continue, translating to a profile of sustained growth with upside potential as operating headwinds fade.
"Over time, we expect investors will be willing to pay higher multiples for consistent growth and positive momentum," Berenberg noted.
Following good growth across its civil aftermarket, military and energy market segments, Meggitt now expects total organic revenue growth in 2018 of 4% to 6%, up from previous guidance of 2% to 4%.
Meanwhile, a slower-than-expected recovery at the company's polymers and composites business in the first half means it now expects operating margins to be towards the lower end of the guidance range of 17.7% to 18.0%.
Berenberg opted to raise its price target on Meggitt from 510p to 610p and upgrade its rating from 'hold' to 'buy'.
While Canaccord Genuity expects "some bounce back" in Travis Perkins' second-quarter trading thanks to better weather, the broker believes that profits are still likely to be down on lost sales due to the cold winter.
Canaccord expects TP's contracts unit to have performed relatively well and its plumbing and heating to keep seeing strong top-line growth as it continues to take market share.
However, the Canadian broker anticipates trading at TP's general merchanting division to "remain difficult", with margins and profits down year-on-year, and for the firm's consumer business to likely see profits fall due to a "generally tough backdrop".
Overall, Canaccord expects TP to reiterate that trading conditions remained mixed, leading management to continue its focus on trimming costs to recoup lost profits due to the poor start to the year.
"We believe, on balance, that guidance for EBITA of c.£380m will remain broadly unchanged at this stage," Canaccord said.
"Generally we don't see any respite from the challenging macro backdrop which has been limiting profit growth over the last few years, and we remain cautious in the near term after the recent share price bounce," added the broker.
Canaccord reiterated its 'hold' rating and 1,420p target price on Travis Perkins.