Investors dump defence group Ultra after profit warning
THE share price of defence group Ultra Electronics plunged by almost a fifth yesterday as investors reacted to the company’s chief executive being ousted and a profit warning late on Friday night.
It emerged after markets closed at the end of last week that the company’s veteran chief executive Rakesh Sharma was leaving with immediate effect – news that was first reported by The
Daily Telegraph. The decision followed what the company described as “a period of reflection” by the board on Ultra’s future.
The FTSE 250 company also warned of “difficult” conditions in the UK defence market, which represents about a quarter of the company’s £785m annual revenue. As a consequence, Ultra issued a profit warning, predicting full-year underlying operating profit of £120m, compared with market forecasts of £132m, and that organic revenue would decline by 4pc.
Investors digested the turmoil at Ultra over the weekend and responded by dumping shares as trading began yesterday. They closed down 19.5pc at £12.30, a level last seen in 2009.
The decline wiped more than £200m off Ultra’s market value. Six months shares were trading at more than £20 apiece.
Ultra has been struggling for some time, missing growth targets for the past four years, but has not been singled out for disappointing investors because of wider problems in the sector. Other comparable defence groups such as Chemring, and more recently Cobham, have provided a smokescreen for Ultra’s lack of performance. However, these companies are now on the road to recovery, meaning investors have switched their focus.
Investec analyst Rami Myerson said: “For Ultra to be valued properly it needs to start delivering against expectations on a regular basis. The change of leadership provides a catalyst for a change in sentiment and shows the board willing to act.”