Ultra Electronics (ULE) has lowered its bottom estimate for full-year cash conversion, setting its range at between 65 per cent and 75 per cent. That is down on an expected range of between 70 per cent and 75 per cent at the time of the defence contractor's half-year results.
The impact on investors’ confidence in the stock has been profound, not least because, based on data from Castellain Capital, Ultra is the fifth-most shorted stock on the London Stock Exchange, with short interest of 11.2 per cent.
The group said that it was “experiencing increased working capital requirements arising mainly from the higher order book, underlying revenue growth and a constrained supply chain”. Long lead times for orders have meant that the group has had to get its stock in earlier, while rising demand for electronics is placing strain on the supply chain, according to the group.
Despite management's adjustment to cash conversion forecasts, it has maintained full-year trading expectations. The defence operations generate around 68 per cent of revenues, and the company is encouraged by rising defence spending in the US, where it has significant exposure.
