Credit Suisse downgrades Qinetiq to 'neutral', trims target
QinetiQ Group
533.00p
16:40 03/06/25
Analysts at Credit Suisse downgraded their recommendation for shares of Qinetiq from 'outperform' to 'neutral', arguing that more earnings upgrades would require maturity on existing contracts and pointing to the recent re-rating in the share price, which had put their valuation back at a premium to its long-term EV/EBIT (enterprise value-to-earnings before interest and taxes) multiple versus its sector peers.
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On a more positive note, their neutral stance was underpinned by the company's revenue visibility on key contracts, including on the UK long-term partnering agreement out to 2028 and its international growth prospects.
Nevertheless, they trimmed their estimates for the firm's earnings per share between fiscal years 2020-22 by -5.0%, -5.0% and -4.0%, respectively, driven by the failure of Qinetiq's Global Products Division's failure to achieve in fiscal year 2019 the operational leverage which they had envisaged.
The Swiss broker also lowered its estimate for EMEA services margins by 50 basis points for fiscal year 2020 and adjusted its estimate for the firm's working capital movements.
In terms of potential earnings upgrades, Credit Suisse judged that international catalysts would be crucial, including for test and evaluation contracts in Australia and foreign demand for its UK LTPA sites.
"QQ could also secure further robotics growth in the US following large recent order growth."
Credit Suisse also lowered its target price on the shares from 345.0p to 325.0p.