The half year pre-close trading update from Ultra confirmed that the company is performing as expected. The ending of the Continuing Resolution (CR) in the US appears to have eased some of the contract deferrals and, while some normalisation of the monthly outlays should be expected, the return to more standard budgetary process is welcome. This should allow Ultra to experience the stronger second half that has been flagged in previous trading updates and deliver the expected marginal improvement in earnings. The share price has eased modestly over the last quarter, leaving some headroom to our unchanged fair value of 2,257p.
Written by
Ultra Electronics |
Warming up for the second half |
Trading update |
Aerospace & defence |
23 June 2017 |
Share price performance
Business description
Analysts
Ultra Electronics is a research client of Edison Investment Research Limited |
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The half year pre-close trading update from Ultra confirmed that the company is performing as expected. The ending of the Continuing Resolution (CR) in the US appears to have eased some of the contract deferrals and, while some normalisation of the monthly outlays should be expected, the return to more standard budgetary process is welcome. This should allow Ultra to experience the stronger second half that has been flagged in previous trading updates and deliver the expected marginal improvement in earnings. The share price has eased modestly over the last quarter, leaving some headroom to our unchanged fair value of 2,257p.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
726.3 |
112.4 |
123.9 |
46.1 |
16.3 |
2.3 |
12/16 |
785.8 |
120.1 |
134.6 |
47.8 |
15.0 |
2.4 |
12/17e |
812.8 |
121.4 |
134.7 |
49.5 |
15.0 |
2.5 |
12/18e |
852.8 |
130.2 |
144.5 |
52.0 |
14.0 |
2.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
As mentioned in our previous comment, the CR is normally quite a constraint on US DOD contract awards. The CR ended in early May when the FY17 budget was agreed in the US. As a result, May 2017’s DOD investment budget spending (procurement plus RDT&E) was up by 25% compared to the prior year. While the pace of improvement is unlikely to continue, it does reflect the easing of the shackles in terms of short-term contract awards.
In advance of this improvement in the US, which accounts for around 50% of sales, Ultra has been experiencing improving order intake. The book-to-bill ratio stood at a healthy 1.1x at the end of May. The company will release half year results on 7 August 2017, by which time the potential to avoid a CR in FY18 should be clearer. Global defence spending is still expected to gather pace next year, which augurs well for the medium term.
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Disclaimer
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Preliminary efficacy data, which Prima BioMed presented at ASCO from the 15-patient, safety run-in phase of its AIPAC study, showed sustained immune activation and an encouraging 47% tumour response rate in breast cancer following IMP321 plus paclitaxel combination therapy. Recruitment in the randomised Phase IIb component of AIPAC is ongoing, with top-line data likely by mid-2019. Efficacy data from the final two cohorts in the TACTI-mel trial of IMP321 plus Keytruda in melanoma are expected in H217 and H118 respectively. The 47% AIPAC response rate is in line with Phase I studies and consistent with our expectations, so we leave our valuation unchanged at A$252m (12c per share).