Ultra Electronics issues profit warning, Financial Director bails - UPDATE

16th Nov 2012 07:20

Defence contractor Ultra Electronics has said that uncertainty and cutbacks in the defence sector will hit it profits for the year. In addition, the Finance Director has decided to move on.In a trading updatem the FTSE-250 company said: "Against a backdrop of adverse market conditions in the defence sector, largely driven by political discord over US deficit management, the board expects the group's performance in the year to be sustained around 2011 levels." It added: "In segments where high demand has fallen, such as tactical radios for the US Army, the group has acted swiftly to reduce its cost base, with restructuring costs also impacting 2012 profits."The company explained that in both the US and UK defence markets the start of new programmes are being delayed, and contract officers are unwilling to commit more than incremental funding from approved programmes, resulting in reduced orders.Consensus estimates for the full year ending December 31st were for pre-tax profits of £108m on turnover of £802m. If it comes in near 2011 leaves, this would mean a significant reduction, as 2011 generated pre-tax profits of £91m on turnover of £731m.In addition, Ultra Electronics revealed that after four years with the company its Finance Director, Paul Dean, has decided to take a role outside of the defence and aerospace sector. He will leave around the end of March 2013.Investors who are considering following his lead and bailing from the company, might want to note that its preliminary announcement for the full year will be on March 4th 2013.On a slightly more positive note, the company did say that growing sales in security and cyber, transport and energy, which collectively now account for about 45% of revenue, are contributing strongly to Ultra's overall performance.Broker commentInvestec has a 'hold' on the stock and has put its previous price target of 1535p under 'review'. Analyst Andrew Gollan commented: "The stock sold off heavily following Cobham's downbeat assessment on Monday. The Ultra shine is certainly not as bright as it has been, but in our view it remains a high quality business that will return to growth. This blip could be the opportunity long-term investors have been awaiting. We retain our 'Hold', but place our price target under review."As to to the announcement that Paul Dean, Financial Director, is stepping down to pursue a Financial Director opportunity elsewhere, Gollan commented: "A surprise, but nothing sinister is our take."CM