JP Morgan downgrades Ultra Electronics, slashes target price

Analysts at JP Morgan took an axe to their earnings estimates and target price for Ultra Electronics.

Key to the broker's actions, after the market close on 10 November the defence electronics group lowered its guidance for full-year 2017 organic growth to -4%, from 0% to 1% at the half-year stage and in comparison to the 2% to 3% range penciled in by consensus at the start of the year.

In particular, management referenced weakness in the UK defence market, including over £20m of contracts which were either delayed, deferred or cancelled as a result of purse tightening at Westminster.

EBITA margins were now also expected to be softer, at 15.6%, in comparison to 16.4% beforehand.

JP Morgan also lowered its forecast for the company's organic growth in 2018 from about 3% to roughly 1%.

Meanwhile, the broker's estimates for Ultra's earnings per share between 2017 and 2020 were lowered by 8%, 14%, 12% and 13%, respectively.

Together with a lower target multiple, those EPS markdowns saw the broker slash its target price for the shares by 26% to 1,785p.

One small silver lining was the company's confirmation that under IFRS 15 its 2016 sales and EBITDA would be little changed, "which should help to allay concerns on revenue recognition".

Nonetheless, JP Morgan downgraded its recommendation on the stock from 'overweight' to 'neutral'.