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Ultra Electronics secures record order book

The defence technology group has benefited from higher demand for sonar systems
March 9, 2021
  • The order book reached £1.1bn at the end of last year
  • Ultra’s underlying operating profit rose by 7 per cent to £126m

Thanks to robust defence spending in the ‘five eyes’ nations – the US, Canada, UK, Australia and New Zealand – Ultra Electronics' (ULE) order book expanded by 4 per cent in 2020, to a record £1.1bn. Contract wins included a $145m (£104m) ‘indefinite delivery, indefinite quantity’ (IDIQ) agreement to supply its Orion radio systems to the US Navy.

The group’s underlying operating profit increased by 7 per cent to £126m. Momentum was led by 12 per cent growth in the maritime division amid stronger demand for sonar products such as sonobuoys, which are electronic sensors that detect enemy submarines. This offset weakness in the ‘critical detection and control’ business, where commercial aerospace orders dropped by close to a fifth.

Net debt has fallen by 45 per cent to £86m, equivalent to just 1.1 times adjusted cash profits. On the back of £99m of free-cash-flow generation, the group has declared a final dividend of 41.5p a share.

Coming into 2021, Ultra’s order book provided visibility over 71 per cent of expected revenue and it has continued to secure new contracts. A focus on areas such as cyber security and electronic warfare leave it well positioned for the evolving priorities of global defence spending, and its accelerated transformation plan should translate to improved margins. Buy.

ULTRA ELECTRONICS (ULE)  
ORD PRICE:2,086pMARKET VALUE:£1.48bn
TOUCH:2,085-2,087p12-MONTH HIGH:2,540pLOW: 1,446p
DIVIDEND YIELD:2.7%PE RATIO:18
NET ASSET VALUE:654p*NET DEBT:18%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201678667.682.847.8
201777560.666.249.6
201877742.643.651.6
201982591.010554.2
202086010411856.9
% change+4+14+12+5
Ex-div:8 Apr   
Payment:14 May   
*Includes intangible assets of £445m, or 627p a share

Last IC View: Buy, 1,898p, 8 Apr 2020