Ultra’s trading statement covering the period to 27 April 2017 was released ahead of today’s AGM. It indicates that trading is in line with management expectations. The US budgetary process is in full swing, with the Continuing Resolution (CR) due to expire shortly, which has been a constraint on US defence spending during the period. The already indicated bias of trading towards H217 is still expected to deliver unchanged prospects for modest growth for the year as a whole. Ultra’s shares have continued to perform well year to date (+8.2%), closing in on our fair value of 2,257p. The positive re-rating appears justified by the improving defence outlook globally.
Written by
Ultra Electronics |
Poised for the Trump effect |
AGM trading update |
Aerospace & defence |
28 April 2017 |
Share price performance
Business description
Analysts
Ultra Electronics is a research client of Edison Investment Research Limited |
||||||||||||||||||||||||||||||
Ultra’s trading statement covering the period to 27 April 2017 was released ahead of today’s AGM. It indicates that trading is in line with management expectations. The US budgetary process is in full swing, with the Continuing Resolution (CR) due to expire shortly, which has been a constraint on US defence spending during the period. The already indicated bias of trading towards H217 is still expected to deliver unchanged prospects for modest growth for the year as a whole. Ultra’s shares have continued to perform well year to date (+8.2%), closing in on our fair value of 2,257p. The positive re-rating appears justified by the improving defence outlook globally.
Year |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
726.3 |
112.4 |
123.9 |
46.1 |
16.9 |
2.2 |
12/16 |
785.8 |
120.1 |
134.6 |
47.8 |
15.6 |
2.3 |
12/17e |
812.8 |
121.4 |
134.7 |
49.5 |
15.6 |
2.4 |
12/18e |
852.8 |
130.2 |
144.5 |
52.0 |
14.5 |
2.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Ultra generates around half of its revenues in North America, primarily from US defence and security markets. As a reminder, for defence suppliers a CR in the US means that no new contracts can be initiated. Existing contracts can still be funded or renewed, although even here some constraint may be experienced due to a more cautious stance by buyers. It is operated for prescribed periods where a budget settlement has not been reached, and it can be extended. US defence investment spending (outlay) was down 0.5% in Q117. Congress is trying to agree a budget settlement at present, but any improvement will not likely manifest itself until H217. Hence, the increased weighting of trading expectations for Ultra to the second half. We expect greater clarity by the interim results on 7 August 2017.
The Fiscal Year 2018 Presidential Budget Request (PBR) for Defense is also expected in May. We expect this should confirm an improving outlook for US defence spending in the medium term, consistent with the global trend for increased expenditure. In addition, a more aligned Congress may avoid the CR issue from October, assuming budgets for FY18 are agreed more rapidly.
|
Disclaimer
|
|
Disclaimer
|
Research: TMT
The mission has extended the range of its capabilities in the healthcare segment with the acquisition of RJW & Partners, announced this morning. RJW, a consultancy specialising in pricing and market access strategy, has a wide range of high-profile clients including AstraZeneca, Shire and Novartis. The purchase is for £1.75m (plus £0.23m for cash balances), payable 95% in cash, 5% in shares. Consensus forecasts indicate that it should enhance earnings in FY17e and FY18e by 3% and 4%, respectively. Mission’s shares continue to trade at an unwarranted discount to its peers.