Ultra Electronics issued 'buy' rating after full year results

29th Feb 2016 10:20

(ShareCast News) - Ultra Electronics was issued a 'buy' rating and a target price of 2,060p by Investec after the company reported its full year results.The FTSE 250 firm reported a 1.8% rise in 2015 revenue to £726.3m. Underlying operating profit was up 1.6% to £120m, and underlying profit before tax was largely flat, moving up 0.4% to £112.4m.Chief executive Rakesh Sharma said the UK Strategic Defence & Security Review and the two-year US federal budget brought some welcome stability late in the period, though the industry was still unsure how they would play out. He expects US defence spending to increase in a presidential election year but "these higher levels of spending will take time to benefit the mid-tier defence industry".During the year, the group also completed its acquisition of the Electronic Products Division of Kratos Defense & Security Solutions, which was renamed as Ultra Electronics Herley. The company also introduced a new market segment structure and launched a Standardisation and Shared Services (S3) programme.Investec said the 2015 results and guidance for 2016 were in line with its expectations. Net debt of £296m was better than the broker's expectation due to lower capital expenditure and an increased focus on working capital. However, the 4% increase in the full year dividend to 46.1p was 2% below Investec's forecasts."A new market-facing business structure, the launch of the S3 restructuring programme and the acquisition of Herley should help Ultra capture share in a recovering defence budget environment," said analyst Rami Myerson."We expect a return to organic growth and improving cash generation over the coming years to drive a re-rating of the shares. Buy."The broker upped its full year 2016/2017 estimates for earnings before interest and tax, and earnings per share by less than 1%. Revenue forecasts for both periods were raised 2% to reflect a weaker sterling. However, the dividend estimate for 2016/17 was reduced by 4% and 7% respectively.Shares fell 6.59% to 1,773p at 1111 GMT.