Ultra Electronics a 'buy' after deal with Kratos, says Investec

1st Jun 2015 09:34

Investec has advised buying shares in Ultra Electronics Holdings after the defence and aerospace group agreed to buy the electronics products division (EPD) of Kratos Defense and Security Solutions.The $265m deal with the US-based radio frequency and microwave systems supplier will increase Ultra Electronics' presence in the US electronic warfare market, the FTSE 250 group said in a statement on Monday."We view EPD's technologies as complementary to Ultra's existing capabilities in the C2ISR and Sonar end markets," Investec analysts Rami Myerson and Chris Dyett said. "EPD provides Ultra with additional opportunities to capitalise on growing demand for electronic warfare platforms and technologies in the Pacific and Eastern Europe. This should help drive a recovery in organic revenue growth and a re-rating. Buy."The transaction will increase the visibility of Ultra's order book given how EPD has strong positions on a number of long-term programmes. Ultra expects to close the deal in the third quarter of 2015 and for EPD to be earnings accretive from the first full-year of trading. The company said it predicts it will generate $8m of cost synergies by 2019 as older programmes wind down."We estimate the deal will be 2% accretive in the fiscal year 2015 and 6% and 7% accretive in fiscal year 2016 and fiscal year 2017 respectively as Ultra begins to realise synergies," the Investec analysts added.