Berenberg expects Ultra Electronics takeover to proceed, hikes target price

Analysts at Berenberg hiked their target price for shares of Ultra Electronics sharply, from 2,730.0p to 3,500.0p and labelled the takeover proposal tabled by Cobham "attractive".

Indeed, their expectation was that a formal offer would be forthcoming and with 7% upside left to the proposed valuation they kept their recommendation at 'buy'.

Their previous price target was now the basis for their worst case scenario, assuming that the deal fell through.

Worth noting, the analysts believed the odds of a counterbid were low, pointing that the mooted transaction price represented a 63% premium to where the stock was at before Cobham's first offer on 25 June and 72% more than the UK defence sector which was trading on average EV/EBITDA multiple of 13.5 times.

They also believed the chances that the government might block the deal on national security grounds was low.

"Ultra is in the middle of a multiyear business improvement strategy under a strong management team led by CEO Simon Pryce," they added.

"Much of the heavy lifting has been completed, and we expect material results from the strategy from 2022. We therefore view the proposal as well timed as Ultra transitions from turnaround to higher quality, sustainable growth."