July 2021
The top 10 stocks on our screen this month comprised either of companies
already added to the
CC portfolio, companies with
limited financial information, companies with
red flags (such as increasing debt) or companies with
questionable ethics. So we have searched a little further afield on our list this month and have come across what appears to be a classic 'heads I win, tails I don't lose too much' pick. It is not a traditional value stock pick, as you will be able to see from the RADAR plot and it's financials. Though not currently undervalued, this pick is based on the
stability of the company's current outlook, with a possibility of a large amount of
growth if certain factors are in their favour.
ULE had a
robust
performance in 2020, despite headwinds caused by COVID.
Single digit growth was seen in their order book, revenue, operating profit, profit before tax and earnings per share. They have also managed to pay down a significant portion of debt (£228.1m to £158.8m ) and
increase their free cash flow (£99.4m to £64.7m).
Some financial highlights are below, for more detail you can view their
annual report here:
Images courtesy of Ultra Electronics Holdings PLC.
How do
Ultra Electronics Holdings PLC
make their money?
- ULE provides electronic and software technologies for the defence, aerospace, security, transport, and energy markets.
- The company develops relationships with customers to
identify needs and
customise solutions. It has a wide product portfolio to sell differentiated technologies and systems for improving communication platforms.
- Thousands
of contracts are created with a multitude of customers each year.
- It reports in three segments:
- Maritime
- Intelligence and Communications
- Critical Detection and Control
- Approximately half of the revenue is derived from
North America and around one-third comes from the
United Kingdom.
- If you are still thinking, 'yeah but what do they actually make?!' - here are a few
examples of the recent contracts that they have been awarded:
- ULE provides electronic and software technologies for the defence, aerospace, security, transport, and energy markets.
- The company develops relationships with customers to identify needs and customise solutions. It has a wide product portfolio to sell differentiated technologies and systems for improving communication platforms.
- Thousands of contracts are created with a multitude of customers each year.
- It reports in three segments:
- Maritime
- Intelligence and Communications
- Critical Detection and Control
- Approximately half of the revenue is derived from North America and around one-third comes from the United Kingdom.
- If you are still thinking, 'yeah but what do they actually make?!' - here are a few examples of the recent contracts that they have been awarded:
So why do we like
Ultra Electronics Holdings PLC?
As ever, when we are looking at companies, the first and most important box to tick is whether or not they are
making money. This is especially important during the current Brexit/COVID environment - because who knows how long these business killers will be around for? As far as we're concerned, if you're not able to make money now, there is
no guarantee
you will be any better off in 2-3 years' time.
As demonstrated above, ULE have done
very well throughout 2020 and have the
largest order book in the company's history for 2021 already in place. The potential upside comes from the US - by far ULE's biggest client. It isn't clear yet what the new presidential administration's focus is going to be with regards to defence, but from the 2021 defence budget early signs are that there will be an
increase in spending on
defence overall, and in particular moving funds
away from counter terrorism and into 'near peer threat management'. This is an area of
ULE specialisation and could represent an area of
significant growth for the company.
Conversely, the headwinds created by COVID in terms of global debt management may mean that defence spending could be
curtailed in the future. Overall, ULE are confident of
mid-single digit growth
every year for the next 5 years. To hear more about this from the CEO, Simon Pryce, you can watch an interview with him here -
https://www.ultra.group/gb/investors/results-centre/
Conclusion
We believe Ultra Electronics Holdings PLC are well placed for
stable growth over the next 2-3 years, with the possibility for
significant growth
if market conditions are in their favour. We like the company's attitude and strategy, as well as their
healthy and
sustainable dividend yield of
2.5%.
We will be adding it to the CC
portfolio on Monday.
