As long ago as November 2019, I was going on about how defensive I thought FTSE 250 defence and security engineer QinetiQ Group (LSE: QQ) was in the looming face of Brexit. I was apologising for the pun too, and I echo that again.
After that, the share price kept on rising too, and it looked like I might have picked a good one. But that came to an abrupt end in February when Covid-19 arrived. In 2020 so far, QinetiQ shares are down 22%, in line with the FTSE 250. But how is business actually doing?
According to a first-half trading update Wednesday, the company enjoyed a strong second-half performance. The firm said “Our focus on recovery delivered good revenue and profit performance during the second quarter resulting in us finishing close to our original targets, despite Covid-19 impact in the first quarter“.
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Dividends are back
Cash performance was also described as strong, and QinetiQ says it is now focusing on driving sustainable growth. The company suspended its 2019 final dividend when the lockdown began. But it’s really only been delayed, as QinetiQ is set to pay an extra 4.4p dividend as a replacement.
QinetiQ shares are now on forward price-to-earnings multiples of around 14, which is approaching the FTSE 250 average. It’s a company with defensive investment characteristics, a record of solid cash generation, and what I see as excellent long-term dividend prospects. I rate it a buy, at a bargain price today.
FTSE 250 winner
Investment firm 3i Infrastructure (LSE: 3IN) is unusual among FTSE 250 stocks in 2020. Its share price has held up. Well, it’s down 2% since the start of the year, which is perhaps not technically winning. But compared to an index that has lost a fifth of its value, I say it’s a winner.
3i puts its cash in infrastructure assets, and its performance in this Covid-19 year looks resilient. I’m really not surprised the shares have trounced the FTSE 250 so far.
In an interim update Wednesday, the company said: “Most portfolio companies have met or exceeded the expectations we set at the start of the period“.
Some valuations will still suffer from the pandemic effects. But total portfolio income and non-income cash reached £47m, not far down from £57m in the same period last year. Liquidity looks very strong, with a cash balance of £361m at 29 September. The firm also still has its full revolving credit facility of £300m available.
Income attraction
I’m looking for dividends, and 3i’s has been progressive in recent years. The company says it is on track to pay its planned 9.8p per share, for a rise of 6.5% on last year. For a FTSE 250 growth stock, that’s impressive.
We have an investment firm concentrating on what I think are attractive assets. It’s generating cash strongly, and its dividends are growing faster than inflation. The forecast yield for this year stands at 3.4%. There are bigger ones out there, but the strongly progressive outlook for 3i’s dividend attracts me. I’d buy.
