Interactive Investor

Insider: top brass back this share’s attack on record high

21st September 2020 10:11

Graeme Evans from interactive investor


Share on

After Covid ended an impressive rally, this quality firm fought back. Now the chairman is buying again.

A double dividend and near record stock price have provided the backdrop for Ultra Electronics (LSE:ULE) chairman Tony Rice to purchase another £100,000 of shares in the defence systems specialist.

It is the third time in as many months that the ex-Cable & Wireless Communications boss has bought a slug of 5,000 shares, with the FTSE 250 index company continuing to show that it is insulated against Covid-19, thanks to exposure to areas of priority defence spending.

This was in evidence in July's half-year results, when Ultra announced it would pay the previously deferred final dividend of 39.2p from March as well as a dividend of 15.4p for the first half year of trading. The combined award, representing a dividend yield at the time of 2.5%, went into shareholder accounts on Friday.

Shares briefly set a record above 2,500p in early August but have fallen back since then to close last week at 2,128p. Rice bought his shares on Wednesday at a price of 2,159p, compared with previous purchases at 2,052p in June and 2,375p after July's results.

He has been chairman since December 2018, having previously held a number of senior roles at BAE Systems (LSE:BA.). The company, which floated on the stock market at 250p in 1996, is this year celebrating 100 years since it was set up by Edward Rosen from a small West London factory.

It now employs 4,500 people working in over 50 businesses worldwide, with customers including the US Department of Defense and UK Ministry of Defence, as well as other aerospace, defence and critical infrastructure providers.

Recent results showed better-than-expected revenues of £413.1 million, with 14% growth in the order book to almost £1.2 billion offering good visibility at the start of the second half. Major contract wins have included for its joint venture making sonobuoys used in submarine detection, as well as for acoustic and torpedo countermeasures.

Ultra has seen defence spending remain robust in its key "five-eyes" markets of the US, UK, Australia, New Zealand and Canada, although the impact of Covid-19 on civil aerospace is expected to have some impact on revenues over the second half.

CEO Simon Pryce, who previously ran BBA Aviation, said:

“We are continuing to make good strategic progress. Our technology and capabilities are well positioned to address customers' existing and emerging needs.”

The update prompted Peel Hunt to raise its price target on the stock from 2,400p to 2,700p, which it said was an “undemanding” price multiple of 20 times 2021 earnings. The broker noted comparisons with other mid-cap defence stocks Chemring (LSE:CHG) and Avon Rubber (LSE:AVON), which trade on 19 times and 33 times respectively.

Peel added:

“Generally, everything is moving in the right direction for Ultra - end markets, self-help and cultural change - and we see that continuing for the timebeing.”

Analysts at Stifel praised the “confident” half-year results, adding: “Ultra is leveraging relatively stable defence markets and delivering growth.” Credit Suisse has a price target of 2,550p, while counterparts at JP Morgan Cazenove were at 2,620p after July's results.

Chains firm going cheap

Meanwhile, shares in engineering company Renold rallied on Friday afternoon after it emerged that CEO Robert Purcell had increased his stake in the company in a move costing £17,500.

At a price of 8.74p, his purchase of 200,000 shares was made with Renold's market valuation at a multi-year low of just above £20 million. The Stockport-based supplier of industrial chains and power transmission products has been hit hard by Covid-19, although an update in late July said Renold had been profitable and cash generative in each month since April.

The company declined to give financial guidance, but said it was confident that it will be able to manage the current period of disruption and benefit as markets stabilise and demand recovers.

Purcell said:

“The strategic programme that has been undertaken over the past years has resulted in a more resilient business that is better placed to overcome today's challenges.”

He also bought shares worth £40,000 in June at an average price of 9.83p, which at the time was his first purchase since joining the group in 2013.

Renold shares closed last week at 10.10p after a rise of 10% on Friday. This compares with 17.5p seen at the start of the year and 72p five years ago.

The company takes its name from Hans Renold, the son of a burgher family in Aarau, Switzerland, who found work in Manchester with a firm of machinery exporters before establishing his own business in 1879.

Its chains, clutches, couplings and gears are now used in a wide range of industries, including mining, quarrying, power generation and agriculture.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    UK shares
    Income Investor

Get more news and expert articles direct to your inbox

Sign up for a free research account to get the latest news and discussion, and create your own virtual portfolio.

Free Sign Up