Ultra Electronics is in a replenishment phase, investing in new technologies to embed in programmes that should return the company to growth from FY17. In the current year the spending environment remains flat, but FX and M&A contributions will bolster performance, enabling the company to deliver EPS in excess of 2011's record level. Our fair value of 2,037p indicates decent upside for the shares should improve order intake and continuing investment deliver expected growth.
Our estimated fair value for Ultra currently stands at 2,037p, a simple average of our FY17 peer-based sum-of-the-parts and our capped DCF valuation. If Ultra continues to grow EPS in 2017 beyond the range of the last five years, and global defence spending does indeed start to accelerate as western world budgets increase, we feel a moderate rerating is plausible.
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