FTSE 250 defence company Ultra Electronics (ULE) is down 21% to £12.06 due to a reduction in the UK’s Ministry of Defence (MoD) spending.

This equates to almost £250m being wiped off the company’s market cap following the profit warning and news chief executive Rakesh Sharma has stepped down.

Current chairman Douglas Caster is taking the reins until a permanent successor is found. Caster was chief executive of Ultra from 2005 until 2010.

Ultra Electronics Holdings  ULE    S

The UK’s MoD has delayed or cancelled contracts with Ultra leading the company to reduce its forecast for 2017 revenue to £770m and underlying profit to £120m.

In 2016 the company posted revenue of £785.8m and consensus forecasts for its underlying profits for 2017 had been £132m.

Ultra looked to be in good shape when it announced the acquisition of its joint venture partner Sparton in June to be the primary supplier of sonobuoys to the US Navy.

A sonobuoy is usually deployed by an aircraft and is used to find and track enemy submarines.

However, this $234m deal has been delayed by the US Department of Justice demands for further information.

Caster seems to suggest that Sharma’s growth through acquisition policy would be reviewed by saying ‘the board is focused on identifying the right leader to deliver shareholder value through a renewed focus on organic performance in the next stage of the group's development’.


Rami Myerson, analyst at Investec, has reduced his forecasts for the company’s earnings per share for 2017 and 2018 by 11% apiece.

Myerson says ‘For Ultra to be valued properly it needs to start delivering against expectations on a regular basis. We believe the company recognises this’.

Using Myerson’s forecasts, Ultra trades on 10.3 times 2018’s 116.8p of earnings. He views that the company is ‘materially undervalued’ and trades at a discount to its UK and US direct peers.

He adds ‘the change of leadership provides a catalyst for a change in sentiment backed up by strong order intake and robust cash generation. The change of CEO also shows the board is willing to act’.

Issue Date: 13 Nov 2017