Join our community of smart investors

Ultra equipped for military retreat

RESULTS: With US military spending under a cloud, work in non-defence markets is vital for Ultra
July 30, 2012

Ultra Electronics has US politicians to blame for these uncharacteristically weak results and defence contracts will be hard to come by in the second half, too. But Ultra has eggs in enough baskets to offset the military penny-pinching in the months ahead.

IC TIP: Buy at 1473p

Indeed, sales of high-tech kit for nuclear submarines cancelled out a bigger than expected decline in US military demand for tactical radios, and slowdown in aircraft and vehicle work. But revenue still fell 1 per cent and underlying operating profit by 5 per cent after stripping out acquisitions and a currency benefit. Chief executive Rakesh Sharma suspects the US army is "taking the pain" in 2012 rather than wait for mandatory sequestration to happen next year. Anyway, the US Navy is Ultra's biggest defence customer and America's "pivot to the Pacific" will be big business post-Afghanistan. Non-military revenue such as cyber security and commercial aerospace - set to make up 55 per cent of sales within a few years, according to Mr Sharma - will be, too. And big contracts with Areva in China look likely now Ultra has French certification for its nuclear sensors. They're already used elsewhere in China and for upgrading legacy systems in the US.

Investec Securities expects adjusted pre-tax profit of £127.1m for the full-year, giving adjusted EPS of 132.4p (from £114.9m and 119.7p in 2011).

ULTRA ELECTRONICS (ULE)

ORD PRICE:1,473pMARKET VALUE:£1.02bn
TOUCH:1,471-1,475p12-MONTH HIGH:1,787pLow: 1,265p     
DIVIDEND YIELD:2.6%PE RATIO:16
NET ASSET VALUE:427p*NET DEBT:23%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201134443.946.411.7
201237039.141.912.2
% change+8-11-10+4

Ex-div: 15 Aug

Payment: 21 Sep

*Includes intangible assets of £445m, or 643p a share