More positive news from Ultra Electronics Holdings (LON:ULE), as it has announced it has been awarded a contract from the Indian MOD to supply the Indian Navy defence systems. It is a three-year contract, with an initial engineering phase likely to generate lower revenues and margins followed by production deliveries weighted to the second half of its term. It will not make a meaningful revenue contribution in 2017 but should build from 2018 to 2020. H117 results are due on 7 August, which should provide an update on the recently announced offer for Sparton Corporation. The related share placing temporarily dilutes EPS.
Award enhances Ultra’s leading ASW sensor position
Although details in the award announcement are limited, we believe this contract is likely to be the £30m long- term opportunity previously cited by Ultra and called the new torpedo defence system (NTDS), which is one of several open anti-submarine warfare (ASW) opportunities in India at present. Ultra had indicated at its preliminary results that the NTDS contract was with the Indian minister of defence for signature.
The NTDS contract is for the supply of a passive towed array sonar, countermeasures and a fire control system as well as specialised expendable sonars to be mounted on the new coastal ASW corvettes the Indian Navy is planning to introduce. Ultra is to supply a system based on its Sea Sentor product in service with the UK Royal Navy. It consolidates Ultra’s leading position in underwater warfare sensors, which is important not just for future Indian ASW contracts, but also other potential export markets. When it completes, Sparton Corporation should strengthen this further.
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