Two FTSE 250 stocks flying in different directions

Shares in this £2 billion business are fast approaching a record high, but a fellow mid-cap is nudging multi-year lows. Our City expert explains what's driving sentiment and where the price might go.

The momentum behind QinetiQ (LSE:QQ.) shares continued today as the FTSE 250 company revealed further progress in targeting the world’s largest security and defence market.

Shares added 6.4p to 387.2p, building on gains for this year of more than 40%, as Hampshire-based Qinetiq announced a five-year contract worth $45 million (£37.2 million) that will see it provide technical services to the US Army.

The award is the most significant yet for the science and technology company’s strengthened US leadership team. It comes after Friday evening’s major announcement that Qinetiq is buying Avantus Federal, a privately owned US firm that specialises in cyber, data analytics and software development, for $590 million (£487.6 million).

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The acquisition has been described as “transformational” by analysts at Numis Securities, given that Avantus will grow Qinetiq’s revenues by 25% and double the size of its US business.

Numis, which has a price target of 460p, added that Avantus provided “strong capabilities in important and growing market segments of the US defence and security markets.”

The broker’s calculations suggest the transaction could be some 12% earnings enhancing in its first full year.

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Chief executive Steve Wadey hailed the acquisition as an “important step” in the execution of Qinetiq’s five-year ambitions to expand its presence in the US.

He added that it creates a leading defence and intelligence business delivering “mission-led, disruptive innovation” to customers in the US, UK, Australia and other Five Eyes nations.

The expansion comes as recent world events reinforce the longer-term demands of Qinetiq’s customers. The deal will be funded through a combination of existing cash resources and a new £350 million debt facility, but analysts at Berenberg believe the balance sheet is far from stretched and that they expect a net cash position by 2026.

Berenberg, which has a 440p target price, added: “Avantus is a high-quality cash-generative business offering sustainable double-digit revenue growth supported by a strong order pipeline, enabling Qinetiq to outgrow broader defence budgets.”

IWG: buyers put on their 'out of office'

Elsewhere in the FTSE 250 index today, serviced office provider IWG (LSE:IWG) tumbled 16p to 177p after opting not to resume dividend payments alongside half-year results.

The interim figures showed revenues improved 23% as strong demand for hybrid working boosted the company, but this was offset by inflationary pressures on employment costs and utilities and the impact of accelerated investment.

IWG chief executive Mark Dixon said: “Our industry is experiencing many tailwinds. Hybrid working lowers costs significantly, in a time of growing economic and inflationary concerns.

“Crucially, hybrid working is now what employees want and it helps companies overcome resourcing issues in a very competitive market. Hybrid working also helps to reduce carbon footprint at a time when there is a growing focus on sustainability.”

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The company, which has 3,300 workspace locations in 120 countries, reduced its adjusted loss for the six months to 30 June to £70.2 million from £163.3 million.

Dixon is looking forward with “cautious optimism” to the rest of 2022 but macroeconomic uncertainties and geopolitical tensions means the group will continue to focus on maintaining sufficient funding.

It said: “As a result, dividend payments currently remain on hold with a clear intention to return to our progressive dividend policy at the earliest possible opportunity.”

The shares have fallen by more than 40% so far this year.