Qinetiq quietly confident after first quarter as UK defence reviews loom

22nd Jul 2015 09:29

(ShareCast News) - First quarter results from Qinetiq were in line with expectations, as the defence and aerospace company's healthy contract pipeline remains dependent on several UK defence spending reviews.The core Europe Middle East and Africa (EMEA) business, which makes up more than three quarters of revenues, enjoyed a "solid" performance during the first quarter, although some customer contract award decisions deferred after the government kicked off its Strategic Defence and Security Review (SDSR).However, revenue under contract was said to be "as expected at this stage in the financial year", with 80% of revenues already covered at the previous year end, meaning it does not need any large contract wins to close the year.Qinetiq said it was "well positioned" in the UK market, although specific allocation of the UK defence budget is unlikely to be determined until the SDSR is completed at the end of this calendar year.But it cautioned that the 2016 financial year will see "uncertainty and the potential for interruptions to order flow".The Global Products division has traded at similar levels to the equivalent period last year, in line with expectations, but with full year order cover "slightly above" the previous year as new US management team continues to reposition the business to address challenges in its end markets.QinetiQ completed £22m of its share buyback in the quarter and £130m of the £150m programme by 17 July, with the programme expected to be completed in the next few months.Broker Investec said it did not expect Qinetiq to announce a follow-on share buyback before interim results in November."The UK defence transformation, upcoming Budget Review and SDSR could impact defence markets and QinetiQ's revenues and profits in the short and medium term," wrote analyst Rami Myerson. "UK Budget uncertainty, the end of the share buyback and uncertainty on strategy could increase volatility and provide opportunities."