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Ultra Electronics returns to growth

The aerospace and defence technology group had been expected to round off a difficult 2018 with poor cash conversion
March 7, 2019

Ultra Electronics (ULE) managed to salvage something from a torrid 2018, as the aerospace and defence technologies group returned to organic revenue growth for the first time since 2011. The group’s 2.2 per cent organic growth was driven by increases in its US and international sonobuoy revenues, along with demand for its radio and Air Defense Systems Integrator (ADSI) products from the US military.

IC TIP: Sell at 1,429p

Ultra also managed to deliver a cash conversion rate of 79 per cent, up on earlier estimates, while net operating cash flow was up 12 per cent to £86.7m. The net debt to cash profits ratio also improved over the second half, falling to a multiple of 1.25, from 1.39. It expects to end the year with a multiple of 1.2, to reflect a normalisation of working capital over the year and its disposal of its airport systems division, announced in February. Receivables were static on 2017 at £205m, although inventories were up 15.6 per cent – a possible bulwark against the UK's theoretical exit from the EU.  

House broker Investec forecasts full-year 2019 pre-tax profits and EPS of £98.6m and 111p, respectively, against £102m and 111p last year.

ULTRA ELECTRONICS (ULE)  
ORD PRICE:1,429pMARKET VALUE:£1.05bn
TOUCH:1,427-1,429p12-MONTH HIGH:1,763pLOW: 1,200p
DIVIDEND YIELD:3.6%PE RATIO:33
NET ASSET VALUE:570p*NET DEBT:37%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201471421.529.844.3
201572634.835.746.1
201678667.682.847.8
201777560.666.249.6
201876742.643.651.6
% change-1-30-34+4
Ex-div:11 Apr   
Payment:9 May   
*Includes intangible assets of £492m, or 666p a share