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How Ultra Electronics stays strong in face of market turbulence

The solutions specialist has harnessed acquisitions to keep numbers ticking up amid difficult market conditions
August 1, 2016

There are two things to remember when you cast your eye over half-year results from specialist solution provider Ultra Electronics (ULE). First, market conditions remain tough and mostly unchanged since the group reported full-year results in March. Second, the numbers are largely second-half weighted anyway. That said, the decline in organic revenue has at least slowed to 2.5 per cent - compared with an 11.9 per cent drop this time last year - and underlying operating margins and cash conversion have both improved.

IC TIP: Buy at 1,718p

The order book has also increased over the course of 2016, but this measure also decreased if you disregard the Herley acquisition and currency movements. Still, further significant orders are expected in the second half, and Ultra enters the latter part of the financial year with an 84 per cent order cover despite a slower than expected second quarter.

Concerns remain, however, around defence budgets on either side of the Atlantic. The US government has stalled on resetting the appropriations bill ahead of election season there, while the UK's decision to leave the European Union has left several funding decisions up in the air. That said, Ultra is confident global security requirements will remain high.

Analysts at Investec expect pre-tax profit of £118m for the year ending December 2016, giving EPS of 128p (from £112m and 124p in 2015).

ULTRA ELECTRONICA (ULE)
ORD PRICE:1,718pMARKET VALUE:£1.21bn
TOUCH:1,716-1,719p12-MONTH HIGH:2,044pLOW: 1,573p
DIVIDEND YIELD:2.7%PE RATIO:28
NET ASSET VALUE:512p*NET DEBT:90%

Half-year to 1 JulTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201533214.811.913.8
201636732.638.414.2
% change+11+121+223+3

Ex-div: 1 Sep

Payment: 23 Sep

*Includes intangible assets of £599m, or 852p a share