Targeting Acquisitions And Contracts
Edison | Mar 22, 2017 08:24AM ET
QinetiQ CEO Steve Wadey has now got the bit between his teeth and is on a mission to expand the company internationally while exploiting growth opportunities in the core UK business.
The recent acquisition of Meggitt (LON:MGGT) Target Systems (MTS) seems to make strategic sense, both industrially and financially. This note introduces our FY18 numbers for the first time. Our new FY17 forecasts reflect the purchases of MTS and Rubikon and the £1bn amendment to the Long Term Partnering Agreement (LTPA) with the UK Ministry of Defence (MOD).
LTPA affords some margin protection
The £1bn contract amendment to the Long Term Partnering Agreement (LTPA) with the UK Ministry of Defence (MOD) is significant for two reasons. First, it should provide some margin protection in the EMEA Services division, where the company has been guiding for a decline due to a declining baseline profit rate set by the MOD for single source contracts. Previously the MOD repriced the LTPA every five years meaning that QinetiQ never benefitted from long-term efficiencies, but this new agreement is for 11 years. Second, the MOD’s long-term commitment has empowered QinetiQ to invest in the facilities which should stimulate additional longer-term growth, ideally from international customers.
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