QinetiQ energised in foreign markets

Even before the parliamentary watchdog took the MoD to task, sentiment towards the sector had soured when Ultra Electronics (ULE) warned of “mounting pressures in the funding of UK defence programmes”, at the tail-end of 2017. But against this backdrop, QinetiQ revealed its largest annual revenues in five years, together with a 7 per cent rise in underlying earnings (flattered by one-off items) and a double-digit hike in operating cash flows.

Order levels soared in the prior year, thanks to a long-term partnering agreement (LTPA) with the MoD, but if you exclude this from the equation, along with multi-year contracts awarded in the period, the order book was 15 per cent to the good. However, it’s clear the order mix isn’t quite so favourable – “lower value, shorter dated” – so only 69 per cent of current-year revenues were under contract at the start of April, against 74 per cent a year earlier. On a related issue, the adoption of the IFRS 15 (revenue recognition) accounting standard “is not expected to have a significant impact” on reported financial performance in the current year.

The group’s longstanding links with the MoD can be a mixed blessing when domestic defence budgets are under the pump, so QinetiQ has been diversifying geographically, ergo the recent acquisition of Germany-based air training company EIS Aircraft Group. Even before this deal, international revenues had risen to 27 per cent of the group total, up from 21 per cent two years ago. Bloomberg consensus forecasts give adjusted EPS of 16.9p for FY2019 and the following year.