23rd May 2024 13:18
(Alliance News) - QinetiQ Group PLC is an ambitious company with strong growth potential, an analyst on Thursday said, after the company raised its financial outlook after delivering "strong" annual results.
Shares in the Farnborough, Hampshire-based company soared 14% to 425.82 pence each. It was the best performing stock in the FTSE 250 which was little changed.
Chief Executive Steve Wadey said: "We enter this year with strong momentum and increasing spending in our major markets, which gives us confidence to increase our guidance for [financial 2025]."
"We are well positioned and have a clear strategy with optionality for additional investment in sustainable growth and further shareholder returns," he added.
For the year ending March, QinetiQ said pretax profit fell 4.8% to GBP182.7 million from GBP192.0 million a year prior. Revenue, however, rose 21% to GBP1.91 billion from GBP1.58 billion.
The dividend was increased by 7.1% to 8.25 pence from 7.70 pence a year ago.
Qinetiq highlighted a record order intake of GBP1.74 billion and an order backlog of GBP2.9 billion.
For financial 2025, Qinetiq expects to deliver high single-digit organic revenue growth, compared to financial 2024, at a stable operating profit margin.
The firm said it is "on-track" to achieve around GBP2.4 billion organic revenue at around 12% margin by financial 2027. This will deliver an attractive return on capital employed at or above the upper end of the 15% to 20% plus range, it added.
Shore Capital analyst Jamie Murray said the results were "strong" and a 7% beat to his EPS expectations.
"The outlook is positive with a good order intake, a reasonable order backlog and improved near term visibility, enabling QinetiQ to raise [financial 2025] guidance," he noted.
He noted the order backlog fell which was a concern. But he explained that QinetiQ’s services are, on the whole, short-tailed in nature which means they are less reliant on their order backlog compared to other defence companies.
"This means that the backlog is not a perfect indicator of future performance and so the decline is not as worrying as investors might expect," he added.
Despite a reduction in the order backlog, QinetiQ have 64% of revenue under contract in for financial 2025, he pointed out, an increase of 18% on-year.
Murray expects to upgrade financial 2025 revenue expectations by mid single digits and earnings before interest, tax and amortisation forecasts by low single digits.
"Whilst this is positive news, we would like to see margin progression towards the top end of the medium term target range, which stands at 11% to 12%, rather than languishing at the bottom end," Murray added.
Murray reiterated a 'buy' rating on Qineqtiq which he views as an "ambitious company with strong growth potential".
By Jeremy Cutler, Alliance News reporter
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