Working capital has been a major bugbear at Ultra Electronics (ULE) since the new chief executive flagged it as a problem last year. The bid to optimise working capital is reflected in an increase in 12-month average working capital turn, achieved through a reduction in trade payables (the money the company owes to suppliers) combined with a slight increase in receivables (the money owed by customers). This aided cash generation but, given the underlying operating cash conversion rate stands at 25 per cent (up from 14 per cent in 2018), a little more discipline is probably required.
Ultra certainly isn’t out of the woods. Inventories (another component of working capital) should be carefully watched as the order book creeps upwards, while the Brexit cloud hangs over the supply chain. Global political issues also impacted margins in the first half as sales were delayed in China.
Still, Ultra investors – excluding those who were shorting the stock prior to these results – have more to celebrate than they have for some time. An increase in US defence spending boosted revenues in the aerospace and communications divisions by 13 per cent and 3 per cent, respectively. Asia Pacific tensions also had a positive impact on demand in the maritime business, with revenues up 9 per cent and the order book rising by a fifth.
Analysts expect the recovery to continue, with consensus EPS forecasts of 114p and 122p in 2019 and 2020, respectively (from 105p in 2018).
| ULTRA ELECTRONICS (ULE) | ||||
| ORD PRICE: | 1,987p | MARKET VALUE: | £1.41bn | |
| TOUCH: | 1,987-1,988p | 12-MONTH HIGH: | 1,200p | 2,046p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 30 | |
| NET ASSET VALUE: | 599p* | NET DEBT: | 40%** | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 351 | 20.0 | 20.0 | 14.6 |
| 2019 | 387 | 37.9 | 43.3 | 15.0 |
| % change | +10 | +90 | +117 | +3 |
| Ex-div: | 29 Aug | |||
| Payment: | 20 Sep | |||
| *Includes intangible assets of £488m, or 689p a share. **Excludes lease liabilities of £39.48m | ||||
