- Earnings forecasts remain upbeat
- Shares trade at discount to five-year average
Shares in defence technology group Qinetiq (QQ.) took a dive after the company warned that market conditions had remained “difficult” in the US. Over the second half of its financial year, growth at Avantus Federal – the company it spent $590mn (£348mn) on in August 2022 – was described as “modest” when compared with the first half.
Outside the US, Qinetiq has continued to perform well and said full-year expectations remain in line with analysts’ forecasts, which look decent. Company-compiled estimates show revenue is expected to grow by 19 per cent to £1.88bn for the year just ended, while underlying operating profit before research and development (R&D) credits is set to increase by 18 per cent to £211mn. New orders continue to outrun revenue growth, too, with the company achieving a book-to-bill ratio of 1.1 times.
The company also remains bullish on hitting longer-term goals. In October last year, it spelled out a plan to grow revenue by 7-9 per cent a year while maintaining stable margins of 11-12 per cent and converting 90 per cent of the ensuing profits into cash. So a 7 per cent slide in its shares, dragging the price over a 12-month period down 6 per cent, is perhaps more reflective of the prevailing mood around European defence stocks, which have sold off in recent days.
FactSet consensus forecasts are for Qinetiq’s earnings to grow by 4 per cent for the financial year just ended and by a further 11 per cent this year to 30.5p by next March. Using the latter figure, the shares trade at 11 times earnings – a discount to their five-year average of 14 times and well below peer ratings.
Last IC view: Buy, 337p, 16 Jan 2024
