Ahead of its AGM, Ultra Electronics (OTC:UEHPY) has released a first quarter trading update that indicates no change to management expectations. The company still expects to make modest progress on a constant currency basis, although it will face FX headwinds. Encouragingly, despite the adverse exchange rate movement the order backlog at the end of the quarter stood at £933m, some 2% higher than at the start of FY18. An increased weighting to the second half of cash and earnings performance is still expected. The shares trade on a relatively low P/E against many UK peers, but the discount should start to diminish if operational execution continues as planned.
Notwithstanding the news of the launching of an SFO inquiry last week, the company appears to be trading as expected. The US defence budget was signed on 23 March 2018 lifting the constraints of the Continuing Resolution. With the FY19 budget requests showing healthy increases, and the continuing tensions in the world, prospects for a more favourable spending environment appear to be improving. Even domestically the defence review currently underway may be a catalyst for more favourable funding levels.
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