QinetiQ has seen its share price slump in recent months with last month’s first quarter update doing little to stem the losses.
Analysts at the bank reckon that weakness means that the balance between risk and reward is now “favourably skewed” towards QinetiQ.
Barclays’ Richard Paige points out that QinetiQ has seen more than 25% wiped from its value since the end of May, compared with an average of just -5% for other aerospace and defence stocks.
QinetiQ’s global products division is starting to show signs of life again, too, returning to growth last year for the first time in five years.
“The wash-through of adverse headwinds from largely conflict activity related demand in prior year periods, acquisition benefits and management’s optimism regarding growth again in FY18, suggests the division may finally be turning a corner,” said Paige in a note to clients.
The analyst also thinks the EMEA Services margin risk appears manageable and within range of current market estimates.
Paige adds that cash could be a plus for QinetiQ this year, and is looking for net cash of £190mln at the end of the year.
“With pension risks better contained, we believe management can take a more liberal view to this cash balance, demonstrated by its first acquisitions since 2008,” wrote Paige.
“We estimate that acquisition spend of £150mln at an average of 11x EV/EBITA would add nearly 2p (10%) to our FY19 earnings per share.
QienetiQ shares gained 5.3% to 248.2p in mid-morning trade on Thursday.