- Company warns of delays
- 2025/2026 sales growth cut
- Buyback upped to £200m
Shares in QinetiQ (QQ.) were on course to suffer their biggest single-day loss since listing in 2004, with the shares slumping as much as 20% after the defence group warned delays in UK and US contracts would impact 2025 revenue.
The shares are now trading down 1% year-to-date, although over the last 12-months they are up around 15%, comfortably ahead of the 2.5% advance in the FTSE 250 mid-cap index.
The unexpected warning impacted other defence stocks with Chemring (CHG) falling nearly 3%, Cohort (CHRT) shares down 1.6% while BAE Systems (BA) share were more resilient, losing 2.5p or 0.15%.
CONTRACT DELAYS
The company said trading in the UK Intelligence sector, representing circa 25% of group revenue, had experienced further delays to short cycle contract awards in the fourth quarter after it noted a slowdown in the third quarter.
‘As a result, we have resized some of our capabilities in this sector whilst maintaining market share,’ explained QinetiQ.
Similar delays impacted the Global Solutions business, which is predominately the group’s US business and particularly in higher margin product sales.
In addition, the company referenced geopolitical uncertainty impacting the usual fourth-quarter weighting.
REVENUE DOWNGRADE
Consequently, the group is forecasting 2025 organic revenue growth of around 2% with an underlying margin of 10%, including £25 million to £30 million one-off charges.
For 2026, revenue growth is anticipated to grow in a range of 3% to 5% with margins between 11% and 12%.
Shore Capital’s Jamie Murray believes the 2025 downgrade is equivalent to a 15% undershoot of his forecasts while the 2026 revision represents a circa 8% downgrade to his forecast of earnings before interest.
Murray said the delays were a direct consequence of the UK’s Strategic Defence Review and proposed spending cuts in the US by the Trump administration.
On a more positive note, QinetiQ announced an extension of its share buyback programme by up to £200 million over the next two years. Murray said this illustrated group’s confidence in the medium-term despite near term volatility.
Investment director Russ Mould at AJ Bell commented: ‘A profit warning from the defence sector is the last thing investors expected, given how shares in the industry have rocketed this year on hopes of increased defence spending by governments in various parts of the world.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author (Martin Gamble) and the editor (Ian Conway) of the article own shares in AJ Bell.
