Appreciate what you say, but when an acquirer buys on a cash-free, debt-free basis as per the RNS, you dont need to worry about what the previous owners Capital Structure was like as it is an irrelevance.
Thats the whole purpose of EBITDA, to provide a benchmark ignoring Interest, Tax and Depreciation/Amortisation.
Essentially, those measures are history from a forward perspective.
"You definitely don't take Interest and Tax into account when buying a business."
Jack - I do as I'd only be interested in the real profit multiple -- not saying this is a bad deal at all, just that it's pricey and the historical trade figures my not reflect what happens when it becomes part of QQ.
In my experience most acquisitions offer a poorer return after the deal is done so if you applied some risk element to the operational merging of the units, it could look even more expensive.
Ignoring the previous tax element is all well and good, but unless you are a registered charity, you will also be subject to some similar corporate rate tax charge.
Whether you pay in cash or finance the deal in another form like cash or equity also doesn't really matter as it's the opportunity cost comparison that you will be taking into account.
They are paying a high multiple for a service orientated business entity.
Look at the financial highlights, as it's a good deal.
You definitely don't take Interest and Tax into account when buying a business. Purchasers ignore these as they don't care about the previous tax rate/regime, as that will change on new ownership. Likewise, how the business is funded Pre acquisition is of no interest. QQ are paying cash, so whatever debt structure previously existed can be discounted. EBITDA is a measure for a reason..........
Compound annual revenue growth of 17% over the past three financial years
Average EBITDA margin of more than 20% over the past three financial years
Strong cash flow generation
Expected to enhance QinetiQ's earnings per share in the current financial year
Hear what your saying games, but management feels it will integrate well and is a potential high growth business. Good cash generation as well. Market seems to be backing the management on this move. (sp 236p)
I bought today at 214p to slot into my ISA. Looks like a well run innovative business with its specialities. The Dragonfire laser technology could be a real growth driver from say 2020 which could have a wide range of uses/spin offs. Seems to be the only U.K. company developing lasers for defence. Given the sp weakness seen it is always difficult to know when is best time to buy short term but, this could well be one to tuck in the bottom draw for a few years.
"QinetiQ shares have been "disproportionately" affected by wider bearishness on the sector after the profit warning from peer Ultra Electronics, said Berenberg, upgrading to 'buy' from 'hold'.
Berenberg, which cut its target to 235p from 310p, said it believes UK aerospace and defence stocks "are experiencing wide-ranging short activity, creating real opportunity".
QinetiQ now looks attractive within the sector and in a wider market context on the basis of a valuation of 12 times 2020 expected earnings, good cash flow visibility and net cash of £200m that is around 20% of its market cap.
Occupying a niche research & development space in the UK defence market with multi-year contracts on a £2bn funded backlog, QinetiQ's offerings are largely shielded from the pressures in the UK defence market that have sent investors packing from the sector, said analyst Charlotte Keyworth, suggesting it is shorter-cycle products that under the most acute near-term demand pressure.
The 3% organic growth at Qinetiq's interims was "encouraging" in an environment where peers such as Ultra Electronics, BAE Systems and Cobham are struggling to grow.
As a normally highly cash-generative business, Keyworth looks beyond peak capex of £90m next year and sees normalised levels returning in the 2020 fiscal year, where the company will generate a 7.3% free cash flow yield, "which looks appealing"."
"Unexpected things just keep happening to them, don't they?"
What are they Doggedly?
As per previous post, highlighting some detail would be good.
Was it unexpected to get an 11 year contract?
Was it unexpected to get a sizeable extension to it?
Was it unexpected to sell the US services in 2014 and pay down the debt.
The nature of their business is very diverse. The obvious uncertainties are the still high exposure to UK military spend, and the fact they are dependent on a reasonable amount of one off orders.
But still, having 89% of the business identified at the beginning of a year is probably one up on most of the FTSE250 companies -- I would have thought?
At least they have kept their CEO in place, unlike GKN which is looking a decidely sickly of late.
Games - The market is nervous and sells everything that announces anything at the moment.
"""Underlying earnings per share* for the Group increased by 14% to 9.0p (H1 2017: 7.9p), benefiting from higher profit before tax, lower effective tax rate and reduced number of shares due to the buyback programme which was completed in H2 2017. Statutory basic earnings per share for the total Group (including specific adjusting items) rose 31% to 11.3p (H1 2017: 8.6p), aided by the profit on disposal of property and intellectual property.""
Dividend up 5%
Perhaps annoyingly this :--
"""Orders for the period were £276.3m, compared to £376.8m in the same period a year ago which included the £109m 11-year renewal from the UK Ministry of Defence (MOD) of the Naval Combat System Integration Support Services (NCSISS) contract. Excluding this contract, the RubiKon acquisition and foreign exchange, other smaller run-rate orders in the EMEA Services division fell by £30.1m. Approximately one third of this reduction was the result of the aggregation of smaller aircraft engineering orders into the Strategic Enterprise contract awarded two years ago, and two thirds relate to lower MOD commitments during the period.""
"The difference being that Ultra admit it but QQ are still in denial?"
Doggedly, can you be a bit more specific about what the management at QQ are in denial about?
""I've seen QQ go over too many recent new cliff edges already.""
Also can you clarify what these cliff edges are, and which divisions that they apply to in QQ?
Your answers would be particularly interesting and useful when applied to the disciplines and divisions that QQ have set out.
These are of course :-
Land & Critical Infrastructure
Don't you think that QQ is in all the right spaces going forward, particularly the Cyber and Robotics and the unmanned activities, or do you think that QQ just toy with these things and are never likely to be a serious player?
Given the valuation 8X EBITA compared to Rockwell Collins at 25X -- and the net cash position -- you still don't think they are in a strong position?
Or is the world going to hxll in a handcart do you think?
I think its very dangerous to assume the woes of Ultra have a connect across to QQ.
Compare the Trading Statement from QQ on 29 Sept (with results due on Thursday) with yesterdays Ultra news article.
Directors spent c£500k scooping up shares in the £2.40s after the SP coming down from £3.22. What do they know or what have they got wrong ?
QinetiQ Group plc
Pre Close Trading Update
29 September 2017
QinetiQ today issues a short trading update before entering its closed period for the half year ending 30 September 2017.
Trading has been in line with expectations and the outlook for overall Group performance this financial year is unchanged.
The EMEA Services division started the year in a strong position. Following stronger order intake in the second quarter, FY18 revenue under contract is as expected at this stage in the financial year. We reiterate our guidance for modest growth in revenue in FY18.
The Group's Global Products division has been trading in line with expectations during the first half of the year. As a result of its contracted orders and pipeline of opportunities, as well as the anticipated full year contribution from QinetiQ Target Systems, the division is expected to grow in FY18.
QinetiQ continues to make progress towards becoming a more customer focused and international company. In both the UK and internationally we are particularly well placed to help customers meet the challenges of increasing capabilities while addressing budgetary concerns, and this is reflected in recent key contract awards.
In our UK home market, as part of our strategy to modernise test and evaluation, we secured:
An £8m order from the UK Ministry of Defence (MOD) to provide naval combat systems expertise for Type 26 Global Combat Ship added to the £110m 11-year Naval Combat System Integration Support Services (NCSISS) contract agreed with the MOD this time last year
An order from Boeing, worth approximately £25m, to continue to deliver wind tunnel testing for their commercial aircraft development until 2024
In our US and Australian home markets, as part of our strategy to build an international company, we were awarded:
A significant order for aircraft launch and recovery equipment for the new class of US Navy aircraft carriers
An AU$8m order to manage mine warfare maintenance facilities at HMAS Waterhen for the Australian Department of Defence
The share price of defence group Ultra Electronics plunged by almost a quarter as investors reacted to the companys chief executive being ousted and a profit warning late on Friday night.
It emerged after markets closed at the end of last week that the companys veteran chief executive Rakesh Sharma was leaving with immediate effect - news which was first reported by the Telegraph. The decision followed what the company described as a period of reflection" by the board on Ultra's future.
FTSE 250-listed Ultra also warned of difficult conditions in the UK defence market, which represents about a quarter of the companys £785m annual revenue.
As a consequence, Ultra issued a profit warning, saying underlying operating profit of £120m compared with market forecasts of £132m and that organic revenue would decline by about 4pc.
Investors digested the turmoil at Ultra over the weekend and responded by dumping shares as trading began on Monday morning. They fell as much as 24pc in early trading to a low of £11.55.
The decline wiped more than £200m off Ultras market value, and by mid-morning the shares were at £12.44, down from a peak of more tha £20.00 six months ago.
Ultra has been struggling for some time time, missing growth targets for the past four years, but has not been singled out for disappointing investors because of wider problems in the secto
Likewise in today at 2.14 based on the chunky drop today and Telegraph Questors article a few weeks ago. Not sure how long Ill hold my nerve and stay in if there is a nice bounce back, but when a director buys in at 2.40 and the share price is well below that pressure is on him if he wants to see any upside on his purchase!
""""In a trading statement ahead of its year end on 31 December 2017, the company said that while the majority of its markets have been satisfactory, the UK has been difficult and has become increasingly so in the second half. It pointed to mounting pressures in the funding of UK defence programmes and said this has resulted in the UK Ministry of Defence pausing, cancelling or delaying a number of programmes."""
Cancelling is the word here -- perhaps it's effecting all military contractors right now?
forgive me if this has been raised before......what part has the thought of having a bonkers labour party in charge played in the rather harsh share price markdown ....it seems to have fell back from when the conservatives lost their majority .i'm beginning to think about political risks now that JC is a real potential PM (shakes his head in disbelief) .back to QQ.....a pretty good update and a rather relieved investor here
"We reiterate our guidance for modest growth in revenue in FY18.
The word modest seems a little telling.
The orders that were announced were expected I assume to continue the business, I guess without them the business would have offered up a less than in-line statement and the share price would have fallen perhaps -- or am I looking for the negatives here.
The boeing order looks like a continuation and not new business.
The significant australian deal seems light on detail - but significant sounds promising.
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