Ultra Electronics: Sharpening The Focus
Edison | May 29, 2016 05:48AM ET
Ultra Electronics Holdings Plc (LON:ULE) has announced the disposal of its ID cards printer; once completed there will be some modest dilution to earnings but the deal needs to be taken in context. The business is clearly non-core, is highly cyclical and requires regular technological refresh. As such, while the selling price is optically low, this increases Ultra’s capital focus and modestly improves its debt finance metrics. It also sharpens the focus on the core business.
Ultra is selling Ultra Electronics ID, which manufactures and supplies Magicard ID card printers and related software globally. These are used for the issuance of ID security cards, for example on the entry into company premises. The business is being sold to private equity firm LDC for £22m cash, potentially rising to £25m contingent on performance. The company had FY15 sales of £19.3m and generated an operating profit of £4.0m. The deal is expected to close towards the end of H116, subject to obtaining US regulatory approvals. It will reduce full year sales and operating profit contribution from the Communications & Security division by 7% and 8% respectively, or by c 3% at the group level. Adjusting for the proceeds, we calculate the overall impact on fair value is small.
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