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19 Nov 15. QinetiQ ready for battle. New boss Steve Wadey sprinkled in enough good news to spice up what was otherwise an uninspiring period of trading at QinetiQ (QQ.) Challenging defence markets resulted in flat underlying operating profit and a 29 per cent fall in order intake in the six months to September. But a new £50m share buyback programme and a deal with the Ministry of Defence grabbed the headlines, propelling shares in the defence contractor up 8 per cent on results day.
The announcement of a £153m five-year deal to deliver technical services to fast jets and heavy-lift aircraft means 90 per cent of targeted revenue for the year to March 2016 is now in the bag. According to Mr Wadey, it also shows that QinetiQ is capable of meeting the UK government’s call for contractors to deliver more for less. A rise in Isis-inspired attacks has pushed governments to increase security, he says, without their having the ability to pay the previous going rates.
QinetiQ’s efforts to help the government achieve its conflicting objectives form part of a wider push by the new management team to improve customer focus. But the company’s capital allocation priorities, consisting of share buybacks and bolt-on acquisitions to boost growth, will be maintained.
Broker JPMorgan Cazenove expects adjusted EPS of 15.8p for the year to March 2016, up from 15.3p in FY2015. (Source: Investors Chronicle)
18 Nov 15. ValueAct doubles Rolls-Royce stake. ValueAct, the US activist investor, has increased the pressure on Rolls-Royce to change strategy by more than doubling its stake in the embattled UK aero-engine maker.
On Thursday, the engineering group disclosed that the San Francisco-based hedge fund had lifted its stake to 10 per cent, firmly cementing its place as the company’s largest shareholder. A Rolls-Royce spokesman said ValueAct had formally requested a seat on the board to reflect its stake, but that no decision had yet been taken as to whether the board would back ValueAct’s request.
“We are leaving the option open,” the spokesman said. “We need to understand who their nominee is, where they fit in and whether other shareholders would be happy with it.”
News of ValueAct’s stakebuilding comes just days after the Rolls-Royce, one of the world’s top three makers of aircraft engines, issued its fifth profits warning in less than two years. It has also been disclosed ahead of a crucial briefing to Rolls-Royce investors next week by Warren East, the group’s new chief executive. He is due to deliver the results of his operational review of the company and lay out how he intends to revive its fortunes. Mr East is facing a number of demands from ValueAct and other investors to act more decisively. He has so far resisted calls to divest other businesses — some investors have called for the sale of the marine engine unit — arguing that the group’s diversification is crucial to offset its exposure to the cyclical aerospace market.
ValueAct became Rolls-Royce’s largest shareholder in July and has made a string of investments in some of the UK’s other large engineering groups, including Invensys and Smiths Group. It typically commits to holding its largest positions for several years, and pushes for substantial restructuring.
ValueAct, which began researching Rolls-Royce more than a year ago, believes the market is undervaluing future maintenance contracts for a new generation of aero-engines.
According to people familiar with its thinking, it is urging Rolls-Royce to accelerate its transition to these new engines, and may ultimately also urge the company to sell its non-core businesses, including marine.
Mr East has vowed to accelerate cost cutting in an attempt to boost profitabilit