Military technology company Qinetiq has returned to profit, slashed debt and restored the final dividend. Chief executive Leo Quinn said the board's self-help plan is delivering "substantially" ahead of schedule, but we still think the group faces considerable challenges.
Apart from the profit, which excluding one-off costs increased by a third to £115m at the pre-tax level, almost £200m has been carved off net debt, driven mainly by a sharp increase in underlying net operating cash flow, which swelled to £266m (£174m in 2010). Add in a new revolving credit facility (no debt matures until 2016) and Qinetiq has a "clear path to reinstate value", says Mr Quinn.
Good as all that is, ongoing uncertainty over exactly where UK budget cuts will fall continues to haunt Qinetiq. UK revenues fell 12 per cent and hopes are currently pinned on simulation products and cyber security. Sales of its Q-Net vehicle defence system to the US will probably fall sharply in the current year, having helped drive sales at the global products unit up 66 per cent to £502m. That alone will cut group revenue by 8 per cent and operating profit by 15 per cent, says broker Evolution which expects current-year adjusted EPS to fall from 14.2p to 12.8p.
|ORD PRICE:||117p||MARKET VALUE:||£771m|
|TOUCH:||117-117.1p||12-MONTH HIGH:||138p||LOW: 96p|
|DIVIDEND YIELD:||1.4%||PE RATIO:||152|
|NET ASSET VALUE:||69p*||NET DEBT:||57%|
|Year to 31 Mar||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 3 Aug
Payment: 2 Sep
*Includes intangible assets of £624m, or 95p a share
Qinetiq wants to sell non-core assets and focus on areas that maximise cash generation. But the outlook for UK defence spending is still too cloudy and the cultural transformation, designed to decide which areas are actually core to the group, won't complete for another year. High enough.
Last IC view: High enough, 110p, 19 November 2010