JPM upgrades Ultra Electronics on reduced risk profile
Ultra Electronics results this week and management's confidence "draw a line under a challenging two years" and led JPMorgan Cazenove to take a positive view of the defence contractor's shares.
Aerospace and Defence
10,597.35
17:09 25/04/24
FTSE 250
19,601.98
17:09 25/04/24
FTSE 350
4,434.34
17:09 25/04/24
FTSE All-Share
4,387.94
16:49 25/04/24
Ultra Electronics Holdings
3,500.00p
17:09 29/07/22
Following two years of earnings per share cuts, contract problems, a change of chief executive and a terminated acquisition attempt, Cazenove said Ultra "should now benefit from an improving US defence market, EBITA margins stabilising in the mid-teens, a return to more normalised cash conversion (from 2020), and improved management".
Results for last year, released on Wednesday, showed 2.2% organic growth and a 5.2% organic increase in the backlog.
While the analysts believe Ultra can achieve circa 4% per-year organic growth from 2019-21, they tweaked down their 2019-21 forecasts for EPS by 3% per year, mostly because the company will now take its pension finance charge above the line.
However, as a result of the reduced risk profile of the group, the analysts applied slightly higher target multiples, leading to a December 2019 price target increasing 4% to 1,820p, for 26% potential upside and resulted in an upgrade to 'overweight' from 'neutral'.