Technology-focused defence firm QinetiQ (QQ.) ticks up 0.9% at 196.3p after reaffirming guidance for its performance in the 12 months to 31 March 2014. Yet its US Services business remains under significant pressure. A particularly weak contribution from its Global Products division prompts broker Liberum Capital to cut its first half earnings per share forecast by 10% to 7.8p.
In May we argued the recovery story at QinetiQ, which began when chief executive officer Leo Quinn began restructuring the business in November 2009, might have run its course and the shares have subsequently trod water.
The £1.3 billion cap faces headwinds from 'sequestration' – the enforced spending cuts in the US – and a winding down of American combat operations in Afghanistan. It also has a significant pension deficit (£40 million at the last count) – a legacy of its historical position within the Ministry of Defence where it was rumoured to be the inspiration for James Bond's Q.
There is no new news on a strategic review of the US business today and any potential divestment might be difficult to achieve unless it is heavily discounted.
QientiQ notes 'the range of possible outcomes is wider than usual at this stage in the year, particularly in Global Products and we would suggest this lack of visibility is cause for concern. On a more positive note, cash generation remains strong with Liberum forecasting net cash of £105 million as of the end of September and £135 million at fiscal year end.