News coming from some of the UK’s biggest defence shares has been greeted with quite some fanfare in recent hours. The Babcock International share price soared on Tuesday after a positive market reception to its restructuring announcement. And on Wednesday, its FTSE 250 sector cousin QinetiQ Group (LSE: QQ) flew to 14-month peaks after releasing some really solid trading numbers.
The QinetiQ Group share price rose above 349p per share at one point in mid-week trade. While it’s settled back a tad, the FTSE 250 company remains 9% higher on the day at 348p.
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Upgrading forecasts again
QinetiQ has performed quite robustly despite the pressures created by Covid-19. And the company’s update today shows that trading momentum has remained bubbly in recent months.
In fact, thanks to a “strong performance” during the fourth quarter of last year, QinetiQ said it expects full-year results “to be above our previous guidance and above market consensus expectations” for the period to March 2021.
This is not the first time the FTSE 250 firm has upgraded guidance in recent months. In its November half-year release QinetiQ said that revenues would rise by low double-digits for the full year. And they’d rise by low-to-mid single-digits on an organic basis.
But today QinetiQ predicted it would deliver “high teens percentage revenue growth [and] high single-digit percentage revenue growth on an organic basis.” Furthermore, the UK defence share said that it expected underlying operating profit “to be modestly ahead” of that delivered in the first half. As a consequence full-year profit is tipped to clock in at £147m.
A FTSE 250 overachiever
QinetiQ explained that strong trading has been underpinned by “overachievement across the EMEA Services portfolio”. It explained that this helped to offset Covid-19 disruptions at its Global Products unit, which affected its Target Systems and United States operations.
QinetiQ also said that the sale of three businesses earlier in the year would help its full year. It added that this non-trading gain will be offset by “a goodwill impairment in our German business due to a more challenging business environment.”
In other news QinetiQ said that “good” operating cash flow helped it end the year with a strong balance sheet. This should show net cash of around £150m on 31 March, it added.
A bright future
QinetiQ is maintaining its goals for the medium-to-long term. And the FTSE 250 firm affirmed its target of “mid single-digit percentage compound annual organic revenue growth over the next five years.” It added that strategic acquisitions should further bolster this expected growth.
The engineer has retained its operating profit margin target of between 12% and 13%, too, it said. But it added that “increased investment [in] our digital transformation programme and the evolution of our business mix” would cause margins to fall around 100 basis points in the near term. The business has earmarked between £90m and £120m for the next two years as well.
