We’ve seen many UK shares hit file highs this yr. Within the FTSE 100, these embody high quality shares like RELX and 3i Group, in addition to extra outperformance from Rolls-Royce. Within the FTSE 250, shares as diverse as fintech outfit Plus500 and branded merchandise agency 4imprint Group have additionally reached new peaks.

One other surging mid-cap inventory that has caught my eye just lately is QinetiQ Group (LSE: QQ). Shares of the defence firm have powered 51% greater in 2024 and now sit simply beneath a file 481p.

However is there any worth left after such a powerful run? Right here’s my take.

Geopolitics

QinetiQ is a defence inventory, so it’s in all probability not shocking to see it surging just lately. In spite of everything, we’re dwelling in maybe probably the most harmful interval because the finish of the Chilly Conflict. The dreadful battle in Ukraine reminds us of this, whereas the US and China proceed their sabre-rattling.

Consequently, international defence spending is heading greater, which advantages corporations like QinetiQ and BAE Methods (one other inventory hitting file highs this yr).

Considerably surprisingly although, the QinetiQ share price was decrease in April than it was again in early 2020. It was solely in Might when the inventory took off like a rocket.

Robust monetary efficiency

This adopted the agency’s elevating of its annual steering for the yr ending 31 Might (FY24). It stated income rose 21% yr on yr to £1.9bn, whereas underlying working revenue jumped 20% to £215m.

In the meantime, order consumption reached a file excessive of £1.74bn, lifting its order backlog to £2.9bn. It additionally launched a £100m share buyback programme and hiked the dividend by 7% (although the yield is at the moment a modest 1.7%).

CEO Steve Wadey stated: “We are…on track to deliver our FY27 outlook of circa £2.4bn organic revenue at circa 12% margin…we are well positioned and have a clear strategy with optionality for investment in sustainable growth.”

Rising market alternatives

One threat right here can be a sudden discount in defence spend by Western nations, particularly with Australia, the UK and US collectively representing 94% of its income. The UK alone makes up 66%, so there’s a component of overconcentration.

Sadly although, a transfer in direction of international disarmament doesn’t appear seemingly. Certainly, world navy expenditure is predicted to rise for the tenth straight yr in 2024, reaching a file $2.47trn.

The UK authorities is aiming to extend defence spending to 2.5% of GDP. And NATO has pledged to spend 2%+ of GDP on defence yearly (23 of 32 members are set to attain the goal this yr).

Consequently, QinetiQ sees massive alternatives in all its markets, particularly within the US. It made simply over £400m in income there in its final monetary yr however now sees a £23bn+ complete market alternative.

Extra potential

The final time I wrote concerning the inventory in April, I stated it regarded good worth. It nonetheless does, for my part, buying and selling at 14.9 instances ahead earnings. That’s round half that of friends.

Plus, QinetiQ’s market cap of £2.7bn is a fraction of BAE System’s £38.7bn, so in principle has much more scope to develop.

I have already got shares in BAE. But when I didn’t and if I used to be trying to put money into a defence inventory, I’d think about shopping for QinetiQ.