QinetiQ's record backlog

This time around, the group revealed an 8 per cent increase in organic revenue following calls by the Foreign Secretary, Jeremy Hunt, for UK defence spending to be “decisively” increased over the next decade. Given that Germany has just announced that it will implement the largest rise in its military budget since the end of the Cold War, the UK’s top diplomat may be on to something. So, too, QinetiQ following last October’s €52.6m (£47m) deal to acquire E.I.S. Holding GmbH (now QinetiQ Germany), a provider of airborne training services. Synergies abound, given the Farnborough-based firm’s existing capabilities in air engineering and test aircrew training, but it also underlines the group’s determination to expand its international revenue share, up from 21 per cent to 30 per cent over the past three years.

QinetiQ’s close involvement with the Ministry of Defence (MoD), most pointedly through its Long Term Partnering Agreement (LTPA), has provided good top-line visibility, but the gradual build-up of foreign revenue streams provides enhanced geographical diversification and should contribute to improved margins over time. The group also acquired the controlling stake in another military training outfit, Inzpire Group, at the tail-end of 2018, sealing a year of strategic expansion. The unvarnished figures say it all: order backlog up by a third to a record £3.1bn; 74 per cent of revenue under contract; set against a 74-basis point reduction in the gross margin. The backlog got a major boost from a new C$51m (£30m) drone contract for Canada’s navy and special ops forces – its largest ever export order.

Bloomberg consensus gives adjusted pre-tax profit of £121.6m for the March 2020 year-end, leading to EPS of 19p, rising to £127m and 19.8p in FY2021.