Investment Column: Qinetiq has the firepower to trade higher

Shanks; Endace

Our view: Buy

Share price: 112.3p (+0.3p)

We have been fans of Qinetiq since last summer. Although rhetoric of austerity and the drive for public-sector cuts – including defence cuts – did not bode well for the sector, we decided to take a speculative punt on Qinetiq in the hope that the new chief executive, Leo Quinn, would succeed in turning around the business, which, it must be said, has been through some pretty hard times.

Fast-forward to yesterday and Qinetiq seems to be well on the way to more than justifying our faith.

The company posted better-than-expected full-year figures, with underlying operating profits climbing by 21 per cent to £145.4m, against analyst hopes of around £140m.

But that wasn't all. Qinetiq said it had slashed its debt burden to a manageable £261m from £457m. And it also cheered income investors by announcing that it would resume paying dividends.

The company had suspended payouts for a year, as it went about restructuring itself into three divisions: US services, UK services and global products. The services businesses are the bread and butter of this firm, and face pressures as governments cut back on spending.

However, despite pressure on revenues, we think that the restructuring story still holds water. Mr Quinn is clearly making good progress with his 24-month plan of putting the business on an even keel. The first 12 months appear to have gone well, and should address any concerns about his ability to execute the strategy.

The bears will no doubt highlight that the trading environment remains challenging. Qinetiq conceded as much yesterday.

But the fact remains that the wider sector faces the same challenges. Qinetiq stands out, as it offers the prospect of upside gains if the restructuring continues to progress well. That, and the fact that the shares trade on under seven times forward earnings, make this a confirmed buy.


Our view: Buy

Share price: 121.3p (+2.7p)

It may be involved in waste management, but Shanks was nonetheless smelling sweet yesterday after the release of its full-year results. As well as beating expectations, the group also upped its dividend by 8 per cent to 3.25p a share.

This was impressive given the headwinds the company has faced this year. The main issues have been seen in the Netherlands, which makes up for almost 70 per cent of its profits, where the construction sector has suffered a significant downturn.

Things look promising for the future, though, and Shanks' outlook statement was more positive than before, with the group saying that trading over the past few months offered "encouragement that the market for our services is improving".

But it is in the UK where the real opportunities seem to lie. We currently lag well behind Europe in cutting the waste that ends up in landfill sites, and Shanks is hoping to benefit from government efforts to change this.


Our view: Buy

Share price: 465p (unchanged)

New Zealand-based Endace is called in by clients to monitor networks and help to protect against cyber attacks similar to those that recently devastated Sony's PlayStation Network. And judging by its full-year results released this week, business is brisk.

Revenues rose by a quarter to $38.4m for the 12 months to the end of March. Pre-tax profits were up from $400,000 the previous year to $2.9m.

The company was certainly feeling punchy when it came to the outlook. "The board looks forward to the coming financial year with considerable confidence that the company has the right products, a talented executive team, and an expanding market," it said, not shedding even the slightest hint of modesty or caution.

It pointed to governments increasing spending on cyber security to protect against terrorism, as well as corporations doing the same. Also, as financial firms still have to meet stringent regulation, compliance and risk-management criteria, prospects are also "very exciting".

Ordinarily, the fact that a stock trades on multiples of 2.4 times enterprise value to sales would be enough to make us buy. Endace has more to offer, and alongside the business prospects, there is the chance of bid activity, according to analysts.

ebooksAn unforgettable anthology of contemporary reportage
Life and Style

Board creates magnetic field to achieve lift

There have been various incidents of social media users inadvertently flouting the law

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London