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QinetiQ beats expectations and reinstates dividend

Following a resilient first half, the defence technology contractor says that its full-year results will come in “modestly ahead” of consensus
September 30, 2020

Defence contractor QinetiQ (QQ.) has proved relatively resilient in the face of Covid-19. While the pandemic has hit its smaller global products business – which has shorter order cycles – the group has still managed to grow its revenue in the six months to 30 September. For the full year, it is guiding to “high single digit” revenue growth compared with the £1.07bn it recorded last year and believes the total will come in “modestly ahead” of analyst expectations of £1.13bn.

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The larger ‘Europe Middle East and Australasia’ (EMEA) services division has seen less disruption from Covid-19 as it focuses on long-term contracts and carries out critical defence work. The group says it has been able to continue operating all of the testing ranges covered by its long-term partnership agreement (LTPA) with the Ministry of Defence (MoD), which is a 25-year arrangement that runs to 2028. It has also secured new work under its ‘engineering delivery partnership’ (EDP) with the MoD, including a £13.5m contract to supply technical support services for P8 maritime patrol aircraft.

The pandemic has had a detrimental impact on margins and the group is pointing to a one percentage point contraction from the 12.4 per cent underlying operating profit margin seen last year. Even so, profit is still expected to come in above the £128m analysts currently have pencilled in. QinetiQ says that the margin is expected to stay between 11 and 12 per cent in its 2022 financial year, but it is still aiming to reach 12-13 per cent in the medium term.

While no specifics have been provided, cash generation is said to have been “strong” and the group is now reinstating its final dividend. It will hand out 4.4p a share on 16 November to shareholders on the register at 9 October.