Ultra has announced a series of contract wins in recent weeks, culminating in today’s significant $18.4m electronic warfare (EW) award for TCS in Canada. While the company is guiding for organic performance of -2% to +3% in 2016, prospects for global defence spending continue to improve. Increasingly, export customers appear to be upgrading capabilities, while traditional home markets in the UK and the US are now moving off recent lows. Ultra should benefit from this trend as well as its commercial exposures as new products and contracts start to contribute more meaningfully from next year. We continue to regard Ultra as robust, with our capped DCF and SOP both returning values closer to 1,900p per share.
Ultra TCS in Montreal has received an $18.4m order for its UltraEAGLE ALR-510 airborne ELINT (Electronics Intelligence) system, an advanced Electronic Support (ES) receiver system for Intelligence, Surveillance and Reconnaissance (ISR) applications. It will also deliver and provide engineering support for its related Talon ground control system software and other Ultra EW equipment. The contract is for a NATO customer for a UAV programme, and includes options for after-sales support.
The contract is one of those deferred from 2015 that led to a £100m hole in the year-end order backlog. The receipt of several of them combined with other new contracts has led to strong order intake in H116 and the full year book to bill looks set to be in excess of 1x. Our forecasts are unchanged and, as the orders improve, we would expect some reversal of the derating that followed the FY15 results. If global defence spending increases in line with improved expectations, Ultra is well positioned to benefit.