As companies on the stock market go, QinetiQ (QQ.) has a particularly engaging backstory. Emerging out of the Ministry of Defence arm believed to be the inspiration for James Bond’s gadget-man Q, these origins even tell you something about the company today given its focus on tech-driven areas of the defence sector.

However, an annualised total return of 4.7% since its IPO 19 years ago suggests the company has largely flattered to deceive since joining the market. More Johnny English than 007.

Of late, the company’s 2022 acquisition of Avantus Federal – a Virginia-based cyber and data analytics business – has not lived up to $590 million price tag.

Now the company has issued a major profit warning, which dented investor expectations that it could benefit from increased military spending in Europe.

Shore Capital’s Jamie Murray indicated that the 2025 downgrade equates to a 15% cut to his forecasts, while the 2026 revision represents approximately an 8% cut to his forecast of earnings before interest. Murray attributed these delays to the UK’s Strategic Defence Review and proposed spending cuts in the US by the Trump administration.

There are arguably two takeaways here. First, ‘story’ stocks are probably best avoided unless the excitement they generate can be backed up by the hard currency of growth in revenue, earnings and cash flow.

Second, investors need to be cautious about playing an emergent new theme. An increase in European defence spending obviously creates opportunities for the sector, but on the flipside it will likely take time for evidence of bigger budgets in European countries to be reflected in the performance of individual companies.

In addition, the reason countries in Europe are having to step up to the plate is a likely US retrenchment which looks set to see one of the more reliable buyers of military hardware scale back spending.

Another knock-on effect of the new US administration’s policy agenda, this time on trade, is reflected in some pretty bleak-looking projections from the OECD and domestic consumer confidence readings, which Martin Gamble discusses and places in context in this week’s news section.

There were some interesting views on trade thrown up by a recent Invesco survey of sovereign wealth funds managing $1 trillion worth of assets.

While tariffs are clearly becoming more of a concern, the responses provide a lesson for investors concerned about recent stock market volatility.

Invesco says: ‘Despite sovereign investors anticipating higher levels of volatility, they anticipate there could also be benefits. As long-term investors, they can ride out short-term volatility and seize on dislocation opportunities.’ 

The message is, having a long time horizon allows you to keep a sense of perspective and not feel you have to react to short-term noise.

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