The QinetiQ Group share price takes flight: time to take a look?

With global tensions rising, the relatively high valuations of the tech-heavy Nasdaq and S&P 500 have faltered — but one index’s loss is another’s gain, as constituents of the FTSE 350 take centre stage. The FTSE 350 Aerospace & Defence segment in particular has come under sharp focus, and as I type is up over 12% since the turn of the year. So, with the backdrop of events taking place, I’m looking at quality companies with a track record of growth and smart capital allocation in this sector. In this respect, it’s hard to look beyond the share price of British company QinetiQ Group (LSE: QQ), which in January was voted ‘Most Admired Aerospace and Defence Company’ by the ‘Britain’s Most Admired Companies 2021’ study.

Value and growth

With a market capitalisation of £1.89bn, this top UK defence tech firm is a manufacturer of autonomous robotic and integrated artificial intelligence surveillance systems, and has just achieved record order intake for the full year contributing to revenue of £1.278bn, equating to 19% growth in full year-on-year revenue. QinetiQ has also maintained dividends for the last 10 years, despite having to contend with supply chain headwinds and a shift of focus to renewed growth via acquisitions since 2016.

The company is mission-driven and has been involved in a range of projects that aim to reduce the need for fuel and assist in global ESG targets. Looking forward, the company expects to maintain its growth rate over the next five years by increasing market share in the UK, and crucially has set its sights on markets in the US and Australia.

QinetiQ appears to be on the right track to meet its ambitions, with the recent award of a framework U.S Department of Defence (DOD) BOA that could be worth up to $241m over five years. This contract — immediately after the news that it will play a central role in the Royal Navy’s £100m next-generation Electronic Warfare system — follows on from recent contracts and partnerships with US Army, European Space Agency, Australian Department of Defence and Australian Missile Corporation.

Currently, the QinetiQ Group share price has a lot of momentum behind it in the market and is up 36% from its annual low (trading at 326p) but is still trading below its pre-Covid range (18% off its all-time high of 396p), with a price-to-sales ratio below that of its peers on average and in a sector expected to grow at a compound annual growth rate of 26% up to 2025.

The company’s current addressable market is estimated to be in excess of £20bn and still offers a tremendous growth and value story for me, as it looks to retest and surpass its all-time highs in due course, in my humble opinion.

It is worth noting that any signs of a slowdown or decline in revenue growth would see these gains quickly reversed. Supply chain disturbances have certainly weighed on revenue in the past, and sustained disruptions may cause a rethink of valuations.

All things considered, it is clear to me that QinetiQ Group share price still has a lot of upside potential. I will be paying close attention to this company.