(Recasts, adds share price, analyst comment)
LONDON, Nov 5 (Reuters) - British aircraft parts supplier Meggitt said it would buy back more of its shares, taking advantage of its strong balance sheet to return cash at a time when it said there was a lack of acquisition opportunities.
Investors welcomed the buyback news, with shares rising 6.5 percent to 468.5p by 0920 GMT on Wednesday despite the company’s 2015 organic revenue outlook coming in below its medium term guidance.
Analysts at Liberum said the share buyback would be worth around 300 million pounds, while Espirito Santo analyst Edward Stacey said the buyback was a positive surprise.
“They feel they’re under-leveraged and they feel their shares are undervalued so it sends a good signal that they think its a good time to be buying back their shares, so it’s a positive,” said Stacey.
The buyback followed a series of cuts to organic revenue outlook from the company which makes components used by planemakers Airbus and Boeing and also by oil and gas companies.
Meggitt said that it expected organic revenue growth in the low to mid-single digit percent for 2015, below the 6 to 7 percent average it forecast for the medium term in March.
Westhouse analyst Harry Breach said the revenue guidance was disappointing.
“Overall, this appears to be yet another small profit warning for Meggitt and a continuation of recent themes of sluggish aftermarket growth and energy, which is small but has been positioned as a strong growth driver, going into reverse,” he said.
In August the company cut its 2014 full-year expectations for organic revenue growth to low single digit percent from mid-single digits, blaming bigger than expected declines in U.S. military spending and challenges in its energy business.
Meggitt also said it would increase its net debt to core earnings (EBITDA) ratio to 1.5 times by the end of 2015, from a current level of about 1.3.
According to a consensus forecast, Meggitt’s debt to core earnings ratio was expected set to fall to 1 times by the end of 2015.
“Given our strong track record of cash generation and net debt reduction (...) the board believes that maintaining a normal net debt/EBITDA ratio of between 1.5x and 2.5x is appropriate,” the company said in a statement.
Reporting by Sarah Young; editing by Keith Weir