Shares in FTSE 250 defence specialist QinetiQ (QQ.) rocket 7% to 249.8p on Friday as the company releases an upbeat trading update.
Importantly, today's news confirms several major contract wins.
ORDERS COMING IN
The company is cementing its relationship with the UK’s Ministry of Defence (MoD) with a new £8m order. That's to provide naval combat systems expertise for the Type 26 Global Combat Ship.
This follows a £110m 11-year contract agreed with the MoD at the same time last year. That was for the company's Naval Combat System Integration Support Services.
It also secured an order from US aerospace giant Boeing worth around £25m to continue to provide wind tunnel testing for its commercial aircraft until 2024.
As part of the company’s stated aim to be international, it also reports a AU$8m contract to manage mine warfare maintenance facilities at HMAS Waterhen for the Australian Department of Defence.
QinetiQ has also received a ‘significant’ order for aircraft launch and recovery equipment from the US Navy although did not disclose how much this is worth.
IN THE DOLDRUMS
The company’s share price has been declining since it released its full year to 31 March 2017 results in May. Its down over 20% to date.
This share price weakness seems to have puzzled some analysts including Investec’s Rami Myerson. He says ‘We see no specific reason [for share price weakness] given the contracted visibility in EMEA Services for 2018 and improving medium term outlook for Global Products’ referring to the company’s two divisions.
WHERE NOW?
The company reports that it is trading in line with expectations and the outlook for the year is unchanged. However, data from Reuters shows that most analysts suggest holding the stock with only a couple of ‘buy’ recommendations.
Berenberg is in the ‘hold’ camp, saying ‘despite a somewhat uninspiring set of near-term fundamentals, investors can have confidence in QinetiQ’s ability to continue to invest’.
QinetiQ is trading on 14.4-times 2018’s 17.3p earnings per share using Berenberg’s forecasts and paying a 2.5% dividend yield. The analyst also says that the company is trading at a 10% premium to the UK defence sector, although adds that its cash position warrants the current premium.
