The FTSE 100’s stock market crash means many of the blue-chip index’s members now appear to offer relatively good value for money.
For example, shares in engineering group Meggitt (LSE: MGGT) are changing hands at their lowest level in 10 years.
FTSE 100 shares on offer
Shares in Meggitt have plunged as investors have become concerned about the outlook for the engineering conglomerate. Indeed, the group is set to be significantly impacted by coronavirus.
The virus outbreak has shattered the aerospace industry. As a critical supplier to the sector, this will almost certainly have a significant negative impact on Meggitt.
As such, the outlook for the company in the short term is bleak. However, while it may take some time for the aerospace industry to recover from the current crisis, over the long term, the sector should return to growth.
When the sector does recover to historical levels of activity, the FTSE 100 engineer should benefit. As one of the largest specialist international engineering companies in the world, Meggitt is a key supplier for many aerospace, defence, and energy businesses. These aren’t the sort of markets where customers are willing to skimp on quality to save costs or decided to change suppliers without a valid reason.
This implies Meggitt has a definite competitive advantage, which should help the company weather the coronavirus storm.
Diversification
Meggitt’s operational diversification should provide some protection. The global aviation industry may be going through one of its worst crises on record, but the defence market is still expanding. Meanwhile, energy companies are still investing. And there’ll always be a demand for critical components from all of these industries.
The FTSE 100 business also has a robust financial position. Interest cover on existing borrowings is 16.3 times. Further, the business has headroom of £806m on existing financing facilities. That should be enough to keep the lights on for the foreseeable future.
To save costs, the company has also decided to put its dividend on ice for the time being and reduce non-essential spending.
Acquisition target
There’s also the possibility one of Meggitt’s peers could use this opportunity to snap up the business at a discounted price. After recent declines, shares in the FTSE 100 giant are trading at a price-to-book (P/B) value of 0.8. That’s compared to the sector average of 1.9. Therefore, the stock looks a cheap acquisition target.
All of the above suggests now could be a good time to buy a share of this world-renowned business. While the company’s short-term outlook is uncertain, its reputation and strong balance sheet should ensure Meggitt delivers a successful recovery as the world economy gradually recovers from the current crisis.
Management certainly seems to agree. Since the beginning of March, senior managers have splashed out nearly £600k buying shares in the business.
