Is Ultra Electronics Holdings plc a better buy than IQE plc, Rolls-Royce Holding PLC and BAE Systems plc after sliding 22%?

Can Ultra Electronics Holdings plc (LON:ULE) (ULE.L) outperform IQE plc (LON:IQE) (IQE.L), Rolls-Royce Holding PLC (LON:RR) (RR.L) and BAE Systems plc (LON:BA) (BA.L)?

Ultra Electronics
Ultra Electronics

The Ultra Electronics Holdings plc (LON:ULE) (ULE.L) share price has slumped 22% today after it released a profit warning. Although the majority of the company’s markets have been satisfactory, the UK market has been difficult. This has increased during H2.

In UK defence programmes, there are mounting pressures regarding their funding. This has resulted in the Ministry of Defence pausing, cancelling or delaying a number of programmes. This has affected a number of the company’s UK orders budgeted for 2017. The business now expects full year total revenue to be around £770 million, with organic revenue to show a decline of around 4%.

As well as this, the win by Herley of additional modules on the SEWIP programme has caused an increase in investment requirement this year. Based on forecast forex rates, underlying EBIT for the full year is expected to be around £120 million.

In spite of the problems it faces, Ultra Electronics has made good progress in the period regarding its order book. The order book for delivery in 2018 at constant forex is over 20% higher than at the same date last year.

In the last year the Ultra Electronics share price has fallen 40%. That’s a worse performance than other defence/technology companies such as IQE plc (LON:IQE) (IQE.L), Rolls-Royce Holding PLC (LON:RR) (RR.L) and BAE Systems plc (LON:BA) (BA.L). IQE has gained 430%, Rolls-Royce is up 22% and BAE Systems has fallen 9% during the same one year time period.

In my view, Ultra Electronics faces an uncertain near term future. Although I feel the company can recover from its tough period, there is scope for a further share price decline to my mind. Therefore, while it’s a stock I’m putting on my watchlist, I believe there may be better options available elsewhere for me at the moment.

About Robert Stephens 3883 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page