The flotation of defence firm Qinetiq, currently owned by the government and US venture capital firm Carlyle Group, has been "nothing if not controversial", says Tom Stevenson in The Daily Telegraph, given the massive returns being made by Carlyle (which bought its 31% stake in 2002 for £42.2m and is expected to raise £213m from the float).
But for ordinary investors, who are now, after much fuss, being allowed to make applications for shares through retail brokerages, that is all "water under the bridge". The real question is whether Qinetiq shares will be a good investment or not.
Qinetiq specialises in "top-secret weapon systems", microwave radar, anti-fraud LCD security systems and remote-controlled mine-clearance boats and robots, says Timon Day in Shares. These are all good businesses: in addition to a £5.6bn, 25-year contract with the MoD to provide support services, Qinetiq is also a major supplier to the space industry and has a number of "exciting anti-terrorist and security products".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Two recent acquisitions have also given it exposure to the US, where defence spending has grown at a compound rate of 7% a year for the past four years, says Stevenson. This now makes up an estimated 30% of sales and the firm is targeting 50%. Earnings are expected to grow by an estimated 15% a year into "the foreseeable future".
That's better than its peers (often shackled by exposure to the highly cyclical commercial aircraft market) and, at the indicated share price on float of 165p to 205p, it more than justifies the company's 14.6 to 17.5 times p/e ratio.
The prospect is not so good if you're looking for income, however the yield will be between just 1.55% and 2.25% says The Times. But if you want growth, says The Daily Telegraph, "the shares look good value up to about 200p". Shares is even more bullish: if you can't get in on the initial public offering, says Day, "buy up to a 15% or so premium on the sale price".
-
Should you invest in UK equities?The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
-
State pension errors: DWP urged to check for mistakes among divorced peopleFormer pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
