Ahead of its AGM Ultra has released a first quarter trading update that indicates no change to management expectations. The company still expects to make modest progress on a constant currency basis, although it will face FX headwinds. Encouragingly, despite the adverse exchange rate movement the order backlog at the end of the quarter stood at £933m, some 2% higher than at the start of FY18. An increased weighting to the second half of cash and earnings performance is still expected. The shares trade on a relatively low P/E against many UK peers, but the discount should start to diminish if operational execution continues as planned.
Written by
Ultra Electronics |
Encouraging order book development |
Trading update |
Aerospace & defence |
27 April 2018 |
Share price performance
Business description
Analysts
Ultra Electronics is a research client of Edison Investment Research Limited |
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Ahead of its AGM Ultra has released a first quarter trading update that indicates no change to management expectations. The company still expects to make modest progress on a constant currency basis, although it will face FX headwinds. Encouragingly, despite the adverse exchange rate movement the order backlog at the end of the quarter stood at £933m, some 2% higher than at the start of FY18. An increased weighting to the second half of cash and earnings performance is still expected. The shares trade on a relatively low P/E against many UK peers, but the discount should start to diminish if operational execution continues as planned.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
785.8 |
120.1 |
134.6 |
47.8 |
10.4 |
3.4 |
12/17 |
775.4 |
110.0 |
116.7 |
49.6 |
9.0 |
3.5 |
12/18e |
743.6 |
100.4 |
106.1 |
52.0 |
13.2 |
3.7 |
12/19e |
767.1 |
103.1 |
115.9 |
54.6 |
12.1 |
3.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Notwithstanding the news of the launching of an SFO inquiry last week, the company appears to be trading as expected. The US defence budget was signed on 23 March 2018 lifting the constraints of the Continuing Resolution. With the FY19 budget requests showing healthy increases, and the continuing tensions in the world, prospects for a more favourable spending environment appear to be improving. Even domestically the defence review currently underway may be a catalyst for more favourable funding levels.
The share buyback has started at a healthy pace with almost 3m shares bought for cancellation at a cost of £41.1m. If the entire cash return is made around current levels the number of shares bought back will be larger than those issued against the aborted Sparton purchase, effectively making the overall effect of the two share transactions earnings enhancing.
The incoming CEO, Simon Pryce, formerly at BBA Aviation takes over at an interesting time in Ultra’s development. If he can reassure the market confidence that has been dented by events over the last six months, we would expect a significant re-rating of the shares. Interim results will be released on 6 August 2018.
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Research: Healthcare
Laboratorios Farmacéuticos ROVI (ROVI) reported Q118 operating revenue of €75.8m (+12% y-o-y), driven by strong growth in the speciality pharmaceutical business (+23%). Flagship drug Hibor (bemiparin) grew 19% (y-o-y) and the majority of the portfolio of drugs posted robust growth. Biosimilar enoxaparin reported sales of €4.1m (despite only being available in Germany since September 2017 and the UK since March 2018), and ROVI has announced a distribution and marketing agreement in the MENA region with Hikma. This asset remains a key driver of near-term top-line growth and medium-term operating profit growth. Toll manufacturing sales declined 23% y-o-y, but we note that Q117 was an exceptionally buoyant year for the injectables division. We value ROVI at €956.7m.