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1. Company Snapshot

1.a. Company Description

QinetiQ Group plc operates as a science and engineering company primarily in the defense, security, and infrastructure markets in the United States, Australia, Europe, and internationally.The company operates through EMEA Services and Global Products segments.It offers advanced materials and manufacturing products; artificial intelligence, analytics, and advanced computing technologies; cyber and electromagnetic technologies; human protection and performance systems; novel systems, and weapons and effects; maritime platform, and system design and assessment products; power sources, and energy storage and distribution products; robotics and autonomy services; secure communications and navigation systems; and sensing, processing, and data fusion systems.


The company also provides testing and evaluation, training and simulation, and cyber and digital resilience services, as well as unmanned air, land, and surface targets.It serves defense, aviation and aerospace, energy and utility, financial services, government, law enforcement, marine, space, and telecommunications sectors.The company was founded in 2001 and is based in Farnborough, the United Kingdom.

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1.b. Last Insights on QQ

QinetiQ Group's recent performance has been positively driven by the release of its half-yearly results, which have led to updated analyst forecasts. The company's fair value estimate has seen a slight increase, rising from £5.53 to £5.57, reflecting growing confidence in its revenue growth. Additionally, QinetiQ has announced a dividend of £0.03, providing a yield of around 2%. The company has secured significant contracts, maintaining a robust pipeline for future growth despite market pressures. Its strong financial foundations and high insider ownership have also been highlighted as attractive features.

1.c. Company Highlights

2. QinetiQ's Half-Year Results: Robust Operational Performance Amidst Challenging Market Conditions

QinetiQ reported a revenue of GBP 900 million, down 3% organically, with a book-to-bill of 0.9x. The underlying profit was GBP 96 million, down GBP 10 million, but the margin at 10.7% was ahead of expectations. Earnings per share (EPS) came in at 0.142, beating estimates of 0.1295. The company's order intake was GBP 2.4 billion, driving a closing order backlog of GBP 4.8 billion, both record highs.

Publication Date: Nov -15

📋 Highlights
  • Robust Order Backlog:: GBP 4.8 billion closing order backlog, with GBP 2.4 billion half-year intake, marking record highs and 8x FY '25 revenue cover.
  • Strategic Milestones:: GBP 1.5 billion LTPA extension for 2033 and strengthened EDP contract to accelerate defense productivity and modernization.
  • Shareholder Returns:: GBP 101 million returned via buybacks and dividends, maintaining leverage at 0.5x by year-end despite GBP 10 million underlying profit decline.
  • Margin Resilience:: 10.7% underlying margin exceeded guidance, with full-year margin target of 11% and 15-20% EPS growth amid 3% organic revenue growth.
  • Geographic and Sector Growth:: GBP 25 million MCAST contract win in UK, GBP 95 million SDA option in US space, and GBP 11 billion qualified pipeline for long-term visibility.

Operational Highlights

QinetiQ delivered robust operational performance despite challenging market conditions, with a significant order book and substantial pipeline providing good visibility for long-term growth. The company achieved strategic milestones, including a GBP 1.5 billion extension to transform the LTPA for future warfare through to 2033 and the strengthening of the EDP contract to accelerate defense productivity.

Financial Guidance

The company maintained its full-year guidance, expecting circa 3% organic revenue growth, margin around 11%, EPS growth of 15-20%, cash conversion around 90%, and leverage around 0.5x at year-end. QinetiQ deployed capital with discipline, returning GBP 101 million to shareholders through its share buyback program and dividend.

Valuation Metrics

With a P/E Ratio of -13.37 and an EV/EBITDA of 8.65, the market seems to have factored in the challenges faced by the company. However, the Dividend Yield of 1.99% and Free Cash Flow Yield of 5.28% indicate that the stock may be attractive to income investors. The ROE of -23.89% and ROIC of -13.52% suggest that the company still faces challenges in generating returns.

Growth Drivers

QinetiQ is well-positioned to capitalize on increasing defense spending and deliver compelling value creation for shareholders. The company is focusing on three areas: partnering closely with customers to build resilience and modernize, pursuing growth in key domestic markets, and expanding into European NATO markets. Growth drivers include test and evaluation, long-term partnering agreements, modernization work in hypersonics and directed energy, autonomous systems, and tasking increases through the Innovation Gateway and DroneWorks initiative.

Segment Performance

The EMEA Services segment is expected to grow around high single digits in the second half, driven by EDP-related task orders, laser-related programs, and targets. The US business is expected to see growth driven by space and missile defense, maritime systems, advanced sensors, and persistent surveillance, with opportunities in multiple space programs such as SDA and SATCOM.

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (14.10%)

6. Segments

Quantum 1 Cannabis

Expected Growth: 15.1%

Increasing adoption of cannabis-based medicinal products, growing demand for precise and consistent formulations, and expanding therapeutic use cases drive growth in the Quantum 1 Cannabis market.

Training Services and UK on-Track TV

Expected Growth: 7.1%

Growing demand for simulation-based training solutions in the rail industry, driven by increasing focus on safety and efficiency, is expected to drive growth. QinetiQ's expertise in providing realistic and immersive training experiences will further boost adoption.

Software and Licensing

Expected Growth: 7.4%

Growing demand for advanced defense and security technologies, increasing adoption of digital solutions in aerospace, and QinetiQ's innovative intellectual property drive growth in the software and licensing segment.

7. Detailed Products

Cyber Security Services

QinetiQ's Cyber Security Services provide comprehensive protection against cyber threats, including penetration testing, vulnerability assessment, and incident response.

Autonomous Systems

QinetiQ's Autonomous Systems provide advanced autonomous capabilities for land, sea, and air platforms, including unmanned aerial vehicles (UAVs) and unmanned ground vehicles (UGVs).

Sensor Systems

QinetiQ's Sensor Systems provide advanced sensing capabilities for surveillance, reconnaissance, and targeting, including radar, lidar, and acoustic sensors.

Training and Simulation

QinetiQ's Training and Simulation services provide realistic and immersive training experiences for military and civilian personnel, including virtual reality and live-fire training.

Engineering and Manufacturing

QinetiQ's Engineering and Manufacturing services provide design, development, and production of advanced systems and components, including electronics, mechanical, and software engineering.

Intelligence and Analytics

QinetiQ's Intelligence and Analytics services provide advanced data analytics, intelligence analysis, and geospatial intelligence to support decision-making and situational awareness.

8. QinetiQ Group plc's Porter Forces

Forces Ranking

Threat Of Substitutes

QinetiQ Group plc operates in a niche market with limited substitutes, reducing the threat of substitutes.

Bargaining Power Of Customers

QinetiQ Group plc's customers are primarily government agencies, which have limited bargaining power due to the specialized nature of the company's services.

Bargaining Power Of Suppliers

QinetiQ Group plc relies on a diverse range of suppliers, reducing the bargaining power of individual suppliers, but the company still faces some pressure from key suppliers.

Threat Of New Entrants

The defense and security industry has high barriers to entry, including significant capital requirements and regulatory hurdles, making it difficult for new entrants to compete with QinetiQ Group plc.

Intensity Of Rivalry

The defense and security industry is highly competitive, with several established players competing for contracts and market share, increasing the intensity of rivalry.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 29.38%
Debt Cost 3.95%
Equity Weight 70.62%
Equity Cost 5.90%
WACC 5.33%
Leverage 41.59%

11. Quality Control: QinetiQ Group plc passed 3 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Dassault Aviation

A-Score: 5.7/10

Value: 2.2

Growth: 6.0

Quality: 6.6

Yield: 5.0

Momentum: 9.0

Volatility: 5.3

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Accelleron

A-Score: 5.1/10

Value: 0.9

Growth: 4.6

Quality: 6.8

Yield: 3.1

Momentum: 8.5

Volatility: 6.7

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Leonardo

A-Score: 4.4/10

Value: 1.9

Growth: 6.8

Quality: 4.0

Yield: 1.2

Momentum: 10.0

Volatility: 2.3

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Kongsberg Gruppen

A-Score: 4.3/10

Value: 1.3

Growth: 8.9

Quality: 8.0

Yield: 3.1

Momentum: 2.0

Volatility: 2.7

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QinetiQ

A-Score: 4.0/10

Value: 5.2

Growth: 4.4

Quality: 1.9

Yield: 3.1

Momentum: 5.5

Volatility: 3.7

1-Year Total Return ->

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Elbit Systems

A-Score: 3.9/10

Value: 0.8

Growth: 6.2

Quality: 5.2

Yield: 1.2

Momentum: 5.0

Volatility: 4.7

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

5.06$

Current Price

5.07$

Potential

-0.00%

Expected Cash-Flows