The first half of 2014 was previously flagged as a low point in terms of sales and profits for Ultra Electronics (ULE), a niche supplier of advanced electronic equipment. Nearly three fifths of group turnover comes from the defence sector, and due to military spending cuts in the US and Britain underlying revenue and operating profit at constant currencies both fell 9 per cent. Exchange rate movements reduced turnover by a further 4 per cent, even though reported profits actually increased because of a swing in the fair value of currency hedges.
Ultra now has a lot of catching up to do if it is to meet full-year consensus forecasts. This would require a 42:58 split between first-half and second-half cash profits. Yet Ultra's board remains confident they will be "broadly met". Management notes, however, that this is dependent on policymakers in the US passing a new defence budget before October. Otherwise there could be order delays in the fourth quarter.
The good news is that Ultra’s order book has improved, with a 13 per cent increase since December 2013 at constant currencies. A recent contract win with the US Navy and four acquisitions totalling £104m since the start of the year should also boost confidence in the potential for future growth.
Broker JP Morgan Cazenove has trimmed its adjusted EPS forecasts slightly to 124p this year and 133p next year.
ULTRA ELECTRONICS (ULE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,761p | MARKET VALUE: | £1.2bn | |
| TOUCH: | 1,760-1,763p | 12-MONTH HIGH: | 2,003p | LOW: 1,642p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 28 | |
| NET ASSET VALUE: | 477p* | NET DEBT: | 41% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 368 | 39.6 | 46.5 | 12.7 |
| 2014 | 341 | 45.8 | 53.3 | 13.2 |
| % change | -7 | +16 | +15 | +4 |
Ex-div: 27 Aug Payment: 26 Sep *Includes intangible assets of £459m, or 656p a share | ||||
