QinetiQ Group plc (LON:QQ) (LSE:QQ.L) has released a Q3 update to investors today. Underlying trading was as expected during Q3, which means its shares are 3.5% higher at the time of writing.
In EMEA Services, revenue under contract for this FY is similar to the same time last year, with resilient margins. The division’s performance as a whole is expected to be steady this year. QinetiQ’s Global Products divisions has shorter order cycles than EMEA Services. Revenue under contract is marginally ahead of Q3 last year, driven by improved order inflow at QinetiQ North America.
QinetiQ’s strategy is progressing well in my opinion. It was awarded a £1 billion amendment to its Long Term Partnering Agreement (LTPA) with the MOD, which commits around 50% of the core LTPA revenues until 31 March 2028. There was also an acquisition during Q3 of Meggitt Target Systems, which has been renamed QinetiQ Target Systems. QinetiQ will also provide the high-powered laser technology for the Laser Directed Energy Weapon (LDEW) Capability Demonstrator programme.
In the last year, QinetiQ’s share price has risen 26%. This is ahead of investments in other industrial companies such as Rolls-Royce Holding PLC (LON:RR) (LSE:RR.L), BAE Systems plc (LON:BA) (LSE:BA.L), Royal Mail PLC (LON:RMG) (LSE:RMG.L) and Meggitt plc (LON:MGGT) (LSE:MGGT.L). Rolls-Royce’s shares are 16% higher, BAE is 25% up, Meggitt is up 14%, while shares in Royal Mail have declined 5%.
In my view, the likes of Rolls-Royce and BAE have greater investment appeal than QinetiQ. I think they offer better growth forecasts and more appealing valuations. Therefore, I’d rather invest in them for the long term. I believe the defence sector could be a good place to invest if higher government spending on the military occurs in future years. I’m also optimistic on Royal Mail’s long-term future, particularly from a dividend perspective.
Although I wouldn’t trade BAE, Rolls-Royce or Royal Mail via a CFD or spread betting trading account at the moment, I think they could be good investments for the long run.