Broker snap: Ultra Electronics downgraded by Investec

15th Nov 2013 09:55

Investec has cut its rating for Ultra Electronics from 'buy' to 'add' after the firm's gloomy third-quarter trading update.The defence, transport and energy products company on Friday that due to a "number of headwinds, mainly in the US government-funded market", revenues in 2013 will be slightly below last year's.Meanwhile, the prolongation of the group's Oman contract continued, with further delays in accessing buildings. As a result, Ultra's installation phase has now been deferred from the fourth quarter of 2013 until next year. Investec analyst Chris Dyett said he reads management's comments "as slightly below [estimates] although we were modestly above consensus forecasts".He said: "Ultra's statement reflects the challenging market conditions in the US as well as delays in the installation of equipment under the Oman contract. We have cut our FY13E and FY14E earnings per share forecasts by 4% and 7%, respectively."However, Dyett said he was not surprised by the cuts to forecasts."We apply a 20% premium to the CY14E price-to-earnings ratio of UK defence peers, which drives our new price target of 1960p (was 2100p). While difficult end markets are likely to persist, in our view Ultra remains a high-quality business."He said he continues to "back management to do the right things to drive long term shareholder value".The stock was trading down 5.85% at 1,785p in morning trade on Friday.BC