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No defence: Ultra Electronics downed as Berenberg and JPMorgan Cazenove cut targets

Berenberg cut its target for the defence contractor to 1,300p from 1,550p and reiterated a ‘sell’ rating on the stock, noting a recent rally by the shares

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JPMorgan Cazenove reduced its target price for Ultra Electronics to 1,735p from 1,785p, while retaining a ‘neutral’ rating on the stock

Ultra Electronics PLC (LON:ULE) was the biggest mid-cap casualty in morning trading, knocked by price target downgrades from both German broker Berenberg and US banking giant JPMorgan.

In mid-morning trade, Ultra Electronics shares topped the FTSE 250 fallers list, down 7.3%, or 102p at 1,288p.

Berenberg cut its target for the defence contractor to 1,300p from 1,550p and reiterated a ‘sell’ rating on the stock noting a recent rally by the shares.

READ: Ultra Electronics wins two contracts worth £25.6mln in wake of profit warning and CEO departure

The German broker’s analysts pointed out that, following Ultra Electronics' November 2017 profit warning, CEO departure and Sparton acquisition delay, the shares de-rated by 38% to an eight-year low.

Since then, they added, the stock has now rallied by 20%, which they think creates “an opportunity to short into the forthcoming trading update.”

The Berenberg analysts said they believe a cautious 2018 guidance will be set then, while in addition, material risks regarding the Sparton transaction and Oman arbitration remain.

JPMorgan sees defence underperforming

Meanwhile, JPMorgan Cazenove reduced its target price for Ultra Electronics to 1,735p from 1,785p, while retaining a ‘neutral’ rating on the stock, in a review of the European aerospace and defence sector.

The US broker also cut targets for UK peers BAE Systems PLC (LON:BA), Chemring PLC (LON:CHG), Cobham PLC (LON:COB) and Meggitt plc (LON:MGGT), while raising the target for Senior PLC (LON:SNR).

In their note to clients, the JPMorgan analysts said: “Over the next 12 months we expect the European Civil Aerospace sector (ECA) to outperform the European Defence Sector (EDS), though not as dramatically as in 2017 (c30%).

READ: Ultra Electronics shares drop as it blames US budget and UK general election for first half revenue decline

They added: “ECA fundamentals remain very strong, whereas the outlook for the EDS is mixed. That said, in recent weeks we have seen some mean reversion (EDS outperforming ECA) and that could certainly continue in the early part of 2018.”

The analysts concluded: “We would be inclined to buy ECA on the current pullback and take profit on any pronounced EDS rally.”

Quick facts: Ultra Electronics

Price: 1946 GBX

LSE:ULE
Market: LSE
Market Cap: £1.38 billion
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