Ultra Electronics - Termination of Sparton acquisition process

FY17 results were in line with the guidance reset by management in Q417, with cash performance ahead of expectations. The outlook for FY18 has some acceleration in organic sales growth, tougher FX assumptions, higher investment levels and the adoption of new accountings standards. Combined, this trims our revenues and margins estimates modestly. The proposed merger with Sparton Corporation has been terminated following the outcome of the anti-trust review in the US. While not ideal, US demand for sonobuoys remains strong and trading through the existing JV should continue. Return of cash to shareholders through a buyback reimburses the funds raised last year to fund the purchase. Growth is accelerating modestly, and our fair value stands at 1,816p.