QinetiQ shares jump as results ease defence spending concerns

Friday, May 22, 2015

British defence technology company QinetiQ Group Plc posted higher than expected full-year earnings on Thursday, easing concerns about slowing military spending and sending its shares to a 16-month high.

The company, part of Britain's Ministry of Defence (MoD) before being spun off in 2002, has been hit in recent years by declining military expenditure, forcing it to rethink its strategy and appeal to more commercial customers.

Full-year underlying pretax profit rose 7 percent to 107.8 million pounds ($167.5 million), well ahead of the average 99.95 million forecast, due to solid demand for its core Air, Weapons and Maritime businesses.

The statement sent shares in the group which helped invent radar and night-vision goggles up 8 percent to their highest since January last year, making it one of the biggest gainers in Britain's FTSE 250 index of mid-sized stocks.

"The results are ahead of forecasts ... today's news provides a boost to investor sentiment." said Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers.

The group raised its full-year dividend 17 percent to 5.4 pence per share and said a 150 million pounds share buyback was well advanced.

For the current financial year, it is expected to report profit of around 101.93 million pounds, according to an average estimate of analysts polled by Thomson Reuters.

The company said its Europe, Middle East and Africa (EMEA) services business, which accounts for around 85 percent of revenue, had performed well, particularly in the air, weapons and maritime segments.

But it was cautious about the outlook for Britain's defence industry and said further fiscal austerity and a new five-year Strategic Defence and Security Review (SDSR) was a concern.

"We've got to balance the market uncertainties, so in EMEA services for example, the forthcoming spending review SDSR and the impacts on UK defence," Chief Financial Officer David Mellors told Reuters.

QinetiQ, whose largest customer Britain's MoD still accounts for around 67 percent of revenue, said it would look to overseas markets like Canada, Australia and the Middle East to drive growth as governments pursue similar defence programmes.

"There are governments around the world in a similar position to the UK government with financial pressures ... so that may well be one opportunity," Mellors said.

The company also said it was targeting new civilian customers to help offset declines in defence spending in the United States and Britain.

QinetiQ said it had secured 77 percent of its revenue for the new financial year, similar to a year ago.

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