Qinetiq, the defence technology company originally spun out of the Ministry of Defence, has weakened after a sell note from UBS.
Its shares are down 9.75p at 152.5p as UBS downgraded from neutral, and cut its price target from 175p to 155p. Analyst Avi Hoddes said:
"In our view, QinetiQ is trading at a full valuation, yet we believe its outlook is clouded by a number of significant downside risks. We believe it will be very difficult for QinetiQ shares to re-rate until these concerns are addressed. We also believe consensus views on valuation and earnings are at risk of turning more negative."
In particular UBS is concerned about the recent departure of Clive Richardson, the head of the Europe, Middle East and Africa region; the withdrawal of Land Securities' Trillium division from a consortium including Qinetiq bidding for a £12bn MoD contract, as well as growing UK defence budget pressures.
Other possible probems cited by UBS include:
"The risky and lower-quality drivers of EMEA profit growth; the profit headwind once Iraq/Afghanistan winds down and other US budget uncertainties; weaker margin guidance; and) profit and valuation volatility caused by QinetiQ's pension deficit."
"We are lowering our price target primarily driven by the removal of the value we ascribed to the MoD's Defence Training Rationalisation contract following Trillium's withdrawal from the joint venture bid. We believe the risk
relating to the DTR contract is now too high to warrant a more positive stance."
The fall in Qinetiq has contributed to a 101.1 point decline in the FTSE 250 to 6290.47. Meanwhile the FTSE 100 is now down 72.42 points at 4258.24, with the miners leading the fallers. Given the falls in the oil price despite Opec's production cuts and the continuing uncertainty over the fate of the US carmakers, not to mention the global recession, today's falls are not exactly a surprise. The Dow futures are suggesting a 68 point opening decline, as investors await news of any car industry bail out.
Your Defence News (press release), UK -
Land Securities Trillium (LST) has pulled out of a PFI deal to deliver the MoD’s £1bn Defence Technical Academy, after raising concerns about rising costs ...