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Rough seas for Ultra Electronics

Ultra Electronics was hit by the loss of a key contract and tepid defence spending
March 3, 2015

Ultra Electronics' (ULE) full-year figures were hit by currency movements, the contentious termination of a key contract and lower defence spending. Shares in the group - which supplies software and electronics to the defence, security, energy and transport markets - slid 6 per cent on the news that underlying operating profit fell 3 per cent to £118m.

IC TIP: Hold at 1710p

The contested loss of an IT services contract for Oman Airport dealt a £30m blow to revenue at Ultra's information and power-systems division. Combined with patchy demand for Ultra's policing products, rail power management tools and nuclear reactor controls, that caused a 22 per cent slump in divisional operating profit. Its aircraft and vehicle systems unit posted an even larger decline, reflecting lower sales of electronic warfare radios.

Ultra combated tepid defence spending by investing £41m in product development and by shelling out £108m - more than quadruple last year's outlay - for four acquisitions. Those helped strengthen its order book and contributed to a 30 per cent increase in operating profit at its tactical and sonar systems business. Momentum there looks strong: the division recently won an £18m contract to supply submarine-spotting 'sonobuoys' to the Royal Navy's Merlin helicopters.

Broker Investec expects pre-tax profit of £110m in 2015, giving EPS of 120p, rising to £114m and 124p in 2016.

ULTRA ELECTRONICS (ULE)
ORD PRICE:1,710pMARKET VALUE:£1.2bn
TOUCH:1,707-1,711p12-MONTH HIGH:1,909pLOW: 1,642p
DIVIDEND YIELD:2.6%PE RATIO:57
NET ASSET VALUE:453p*NET DEBT:43%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201071091.396.834.6
201173291.296.238.5
2012 (restated)76179.888.140.0
201374549.354.842.2
201471421.529.844.3
% change-4-56-46+5

Ex-div: 9 Apr

Payment: 6 May

*Includes intangible assets of £461m, or 659p a share