A day after its update, defence technology company Qinetiq is one of the biggest fallers in the FTSE 250.
Shares in the company, spun out of the Ministry of Defence research division, have fallen 6.2p or nearly 3% to 209.3p as analysts at Canaccord Genuity moved from buy to hold and cut their target price from 225p to 205p. They said:
The trading update has not provided a sufficient catalyst to sustain our 10% premium rating of the stock. Market conditions remain challenging for the group, particularly in the Global Products division due to lower demand for conflict- related products. Whilst preferentially-positioned with the UK MoD as a result of the group's heritage and niche advisory capabilities, it is also now materially exposed to its primary customer (around 70% of revenue) following the US Services disposal in May.
The retained business is cash-generative with long-term visible annuity streams generated from the Long Term Partnering Agreement, and although the UK defence budget remains stable, the procurement arm of the UK MoD (Defence Equipment and Support) continues to experience reform as it learns to operate as an arms-length trading entity of the MoD. In our view this learning curve is likely to continue to affect buying behaviour in 2014 and beyond.
