QinetiQ PLC (LON:QQ.) has been upgraded to ‘buy’ by UBS as its progress on international expansion appears to support continued organic growth and better profit margins.

The defence technology group was lifted to ‘buy’ from ‘neutral’ and its share price target to 342p from 297p.

Analysts said they rate the QinetiQ shares as worth buying, given the continued progress on management’s international expansion plan and “we believe this strategy supports organic growth generation, boosting exposure to higher-growth defence budgets such as Australia’s”.

Furthermore, the analysts believe the “relatively shrinking exposure” to lower-margin contracts in the UK and better contract mix should drive margins improvement to 12.0% from 11.4% by 2024.

A reverse-discounted cash flow analysts suggests the shares are currently pricing in 18.4% free cash flow growth out to 2025, while UBS’s forecasts suggest FCF will grow 20.4%.

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