FTSE 250 defence powerhouse QinetiQ’s (LSE: QQ) recent results look soft at first glance.
But beneath the surface, the business has undergone a major strategic shift that is already transforming its prospects.
So, is the market overlooking a golden opportunity in this defence‑tech specialist?
Underneath the headline numbers
Revenue for H1 fiscal-year 2025/26 came in at £900.4m, down 4.9% from £946.8m a year earlier. This reflects the restructuring of its US operations and the disposal of its low‑margin Federal IT business.
Underlying operating profit slipped 10% to £96m, while profit after tax edged 5% lower to £76.8m. However, underlying earnings per share held steady at 14.2p thanks to the accelerated share buyback programme.
Despite these short‑term pressures, cash generation remained robust, with underlying net cash flow from operations at £127.9m.
The real standout was the company’s order performance: intake surged to £2.42bn, up an extraordinary 133% from £1.03bn last year. This drove the funded backlog to a record £4.35bn, 48% higher year on year.
Taken together, these figures show a business absorbing the near‑term impact of restructuring, in my view. And appears to be simultaneously laying the financial and operational foundations for a much stronger, higher‑margin growth trajectory.
New strategic wins reinforce growth story
QinetiQ’s recent contract wins underline how well‑positioned it is in the fastest‑growing areas of modern defence.
The standout is its role in the UK’s latest £316m contract for the DragonFire laser programme. Here, QinetiQ will work alongside MBDA and Leonardo to deliver next‑generation counter‑drone capabilities for the Royal Navy.
Laser shots cost as little as £10 compared to hundreds of thousands for traditional missiles. So this is exactly the kind of high‑value, high‑relevance technology governments are prioritising.
November saw QinetiQ deepen its presence in the Indo‑Pacific through a new partnership with Forcys. This will develop advanced underwater test and evaluation systems for Australia — a core pillar of the AUKUS security framework.
Combined with the £1.5bn Long-Term Partnering Agreement extension, QinetiQ is increasingly embedded in multi-decade sovereign defence infrastructure and mission‑critical technologies.
How undervalued is it?
Ultimately, it is earnings growth that powers any firm’s share price higher.
A risk for QinetiQ’s is any failure in one of its key systems, which could be costly to remedy and could damage its reputation.
However, consensus analysts’ forecasts are that its earnings will grow a stunning 74% a year to end fiscal-year 2028/29.
Assuming that the analyst forecasts are right, although this is by no means a certainty, and using a discount rate of 8.2%, my discounted cash flow model estimates QinetiQ’s ‘fair value’ could secretly be close to £9.30 per share.
That is nearly twice the level at which the share trades today. And because asset prices typically trade towards their fair value in the long run, it suggests a potentially terrific buying opportunity to consider today if those analyst forecasts prove accurate.
My investment view
If it were not for the fact that I already hold two other defence stocks — BAE Systems and Rolls-Royce — I would buy QinetiQ now.
The powerhouse earnings growth should hasten the convergence between the share price and fair value seen in assets over time, in my view.
Consequently, I think the stock is well worth other investors’ consideration.
