Berenberg says Qinetiq deserves premium due to outlook for net cash

Analysts at Berenberg lifted their target price on shares of Qinetiq due to the continued "significant" optionality afforded to the company by its comfortable cash position.

In fiscal year 2018, the defence electronics and components supplier's net cash would reach £197.0m and be unrivalled within its sector, they said, making it deserving of a premium.

Despite the "somewhat uninspiring" near-term fundamentals, Berenberg said investors could be confident of Qinetiq's ability to continue investing both organically, through contract capex, and via internal research and development.

The company also had the firepower necessary to acquire earnings before the 2019 margin "pinch point" when the full effect of contract renewal timing would be evident, Berenberg said.

Recent share price gains already reflected that optionality, as well the two acquisitions carried out in 2016 and better sentiment around defence end-markets, the broker added.

Berenberg raised its target price on the stock from 275.0p to 310.0p, while staying at a 'hold', for roughly a 10% premium versus the sector in terms of its price-to-earnings and EV/EBIT multiples.