JPM upgrades Ultra Electronics on reduced risk profile

7th Mar 2019 10:54

(Sharecast News) - Ultra Electronics results this week and management's confidence "draw a line under a challenging two years" and led JPMorgan Cazenove to take a positive view of the defence contractor's shares.Following two years of earnings per share cuts, contract problems, a change of chief executive and a terminated acquisition attempt, Cazenove said Ultra "should now benefit from an improving US defence market, EBITA margins stabilising in the mid-teens, a return to more normalised cash conversion (from 2020), and improved management".Results for last year, released on Wednesday, showed 2.2% organic growth and a 5.2% organic increase in the backlog. While the analysts believe Ultra can achieve circa 4% per-year organic growth from 2019-21, they tweaked down their 2019-21 forecasts for EPS by 3% per year, mostly because the company will now take its pension finance charge above the line.However, as a result of the reduced risk profile of the group, the analysts applied slightly higher target multiples, leading to a December 2019 price target increasing 4% to 1,820p, for 26% potential upside and resulted in an upgrade to 'overweight' from 'neutral'.