There’s a strong chance that FTSE 250 stock Qinetiq (LSE:QQ) will boom over the next five years. That’s my assessment, based on its new anti-drone laser weapon. This could change the face of modern warfare.
Britain’s Ministry of Defence revealed on 19 January 2024 that it had completed a successful test of Qinetiq’s Dragonfire system. This is a high-powered laser beam that can shoot hostile drones out of the sky.
While this may sound like science fiction, it is in fact a major advancement in defence technology.
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Why this works
Hugely expensive missiles are currently being used to bring down attack drones. We have seen this most recently with the British destroyer in the Red Sea, HMS Diamond.
According to Navy Lookout, the military vessel used Sea Viper missiles to knock drones out of the sky. This was part of its mission to protect merchant tankers in the Gulf of Aden.
Each missile costs between £1m and £2m each, while the drone it brought down only cost around £20,000.
Dragonfire costs less than £10 per shot.
With dramatic cost savings in defending the nation’s interests, I believe Qinetiq is set to take centre stage for the next decade.
Growth market
Qinetiq’s cash generation has been extremely strong recently. And this puts the FTSE 250 growth company in an enviable position.
I see it as being where BAE Systems was in 1993. Investors have seen five years of stable growth, but without dramatic share price returns.
Qinetiq shares just got more attractive, too.
In January 2024, CEO Steve Wadey confirmed a share buyback programme to return £100m to investors. The company explained that it wanted to put its spare cash to work through acquisitions. But no potential takeover targets met its “rigorous financial criteria”.
This is the kind of prudent balance sheet management I very much like to see in my investments.
Where now
Unfortunately we are now in the situation that conflict between Israel and Hamas has spilled over into other parts of the Middle East. British and US forces are ramping up operations in the region.
The number of drones now used in conflicts worldwide is putting immense strain on defence systems. Qinetiq’s Dragonfire is incredibly accurate. According to reports, it can hit a target the size of a £1 coin from a mile away.
It works by emitting a highly-concentrated light beam, which destroys the drone’s electronics system.
Defend yourself
While no-one wants to profit from war, the fact is that Qinetiq has quickly become a key partner in defending British interests.
Most recently, the Ministry of Defence awarded a £405m contract to BAE Systems to upgrade the Sea Viper missile system. The contract was awarded to MDBA, which is a joint venture between the British aerospace company, Airbus and Italy’s Leonardo.
And Qinetiq is now being brought into these huge military contracts. Dragonfire uses Qinetiq’s 50 kilowatt phase-combined laser along with Leonardo’s beam directing system.
Missiles will remain a key air defence tool for now. But I think the future looks clear.
For me, investing in next-gen technology now could yield massive returns. That is, if I can commit to buy and hold for the long-term.
