Daily market update: QinetiQ, AstraZeneca

“The FTSE 100 was steady on Monday despite the Trump administration disappointing hopes for a UK carve-out in tariff plans, saying there would be no exemptions to the levies on aluminium and steel,” says AJ Bell Investment Director Russ Mould.

“Resources stocks were higher after figures from China showed an uptick in retail sales as it looks to lift domestic consumption. However, the data largely reflects a period before the US began putting its trade policy into effect. Financials were another source of strength for the UK’s flagship index.

“A warning of softer profits from Asda on Friday continues to spook investors in Tesco, Sainsbury’s and Marks & Spencer. Investors often presume that whatever happens to one company will happen to everyone else in the same sector.

“Investors will be watching the US market open closely after a bruising week on Wall Street — futures prices early on Monday pointed to further losses. Later this week the focus will switch to central banks and whether they may feel compelled to respond to signs of economic weakness on both sides of the Atlantic.

“The recent trend towards consolidation and takeovers in the renewables and infrastructure investment trust space continued as energy storage play Harmony Energy Income Trust was subject to an 84p per share deal from Foresight Group. Notably that is still short of the published net asset value of the portfolio, whereas some recent takeover deals have been struck at or above NAV.”

QinetiQ

“A profit warning from the defence sector is the last thing investors expected, given how shares in the industry have rocketed this year on hopes of increased defence spending by governments in various parts of the world.

“QinetiQ has shocked investors with news of contract delays and geopolitical uncertainties having a negative impact on higher margin product sales. It’s a reminder to investors that even the sectors with strong earnings growth opportunities aren’t immune to bumps in the road.

“Governments are under significant pressure to become more efficient and pay more attention to costs. That means managers will be under more scrutiny when looking to spend money, having to justify outflows to suppliers of goods and services. Even work of great significance may no longer be doled out freely to contractors — every penny will be scrutinised before signing on the dotted line.

“The UK and US in particular are undergoing reviews of spending and that’s likely to have caused delays on new spending, creating headwinds for QinetiQ.

“The UK government will publish a strategic defence review later this year that analyses threats to the country and how to meet them. It is expected to include an analysis of current resources now and what’s needed going forwards. Until that’s published, there is a real risk to QinetiQ and other defence contractors that UK opportunities are thin on the ground.

“Donald Trump has created the ‘department of government efficiency’ to eliminate wasteful spending in the US, with Elon Musk leading the charge to save money. The US has come under criticism for being heavily reliant on private defence contractors, vastly overspending on the F-35 weapons programme, and suggestions that it has focused too much on nuclear weapons at the expense of cybersecurity and other technology-based warfare.

“It begs the question whether QinetiQ’s profit warning is an isolated event or the sign of things to come for the defence sector. BAE Systems, Chemring and Cohort all saw their share prices dip on the news.

“There is turbulence to navigate in the short term, but longer term Qinetiq remains upbeat. That’s reflected in its decision to extend a share buyback – normally an act applauded by investors but they’re too shocked with the profit warning to notice.”

AstraZeneca

“Pharmaceutical companies face a continual pressure to move on to the next major treatment or medical breakthrough as they spy the end of patent protection on their existing drugs.

“That explains why AstraZeneca has doled out $1 billion to buy Belgian firm EsoBiotec which has made some clinical advancements in cell therapy. It empowers immune cells within a patient’s body to fight off disease.

“This still represents a relatively small bet for a company of AstraZeneca’s size — it is paying out an initial $425 million with the remainder based on hitting certain milestones, having posted revenue of more than $54 billion in 2024.

“Immunotherapy drug Imfinzi has separately been approved in the EU to treat a rare type of lung cancer, and Eneboparatide — a treatment for a rare endocrine disease — has met its primary endpoint in trials.

“Individually, these developments do not dramatically move the dial but for AstraZeneca it is all about having plenty of shots at goal in its portfolio so it can score regularly and continue growing revenue, profit and cash flow.”

These articles are for information purposes only and are not a personal recommendation or advice.