The Investment Column: Ultra Electronics looks high enough

Vanco is worth tucking away for the long term - New hip technology may be a winner for Corin
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The Independent Online

The "soft kill" device is one of the many niches in the defence sector that have paid off for Ultra Electronics.

Yesterday the company announced a possible "break-through" contract, along with a trading update. The US Navy is interested in Ultra's anti-torpedo system.

Already used by the Royal Navy, this product protects surface-level ships from torpedoes fired by submarines. It detects the incoming torpedoes and uses decoys to try to put the missile off the track, making noises that jam the weapon's sonar guidance (hence killing it softly, rather than trying to blow it up).

The US Navy deal has not been finalised and it is worth only $18m (£9m). But the system has already generated £60m worth of orders from the Royal Navy. The US Navy has five times as many vessels as its UK counterpart so yesterday's announcement could lead to a very lucrative line of business.

Elsewhere, one of the growth areas for Ultra is "battlefield IT". Its technology here was deployed in the Iraq war, allowing up-to-date information on the positions of your side and those of the enemy to be shown on a computer screen.

Remember, the US spends $9bn on "network-centric" warfare. Ultra also has products for another current military need, homeland security - for instance, with radar surveillance systems for ports. Not all of Ultra's products are so hi-tech or complete. In many instances, it supplies components to others.

The trading update reported that although the weakness of the US dollar has hit the company, this has been offset by organic sales growth elsewhere. About a third of Ultra's revenues come from North America but that still means it is less exposed to the dollar than many of its peers.

The company's shares have performed well since its flotation in 1996 and have shot up over the past few months. A decent company but its value is already reflected in the share price at 685p. Hold.

Vanco is worth tucking away for the long term

Vanco, the telecoms group that has shown bigger rivals the way in terms of share price performance, continued to prove the sceptics wrong yesterday with a small but nevertheless significant contract win.

The deal is worth £19.1m over seven years and is part of a much bigger £500m agreement between Lloyds TSB and IBM which will provide the financial services group with a new, high-performance data and voice communications network.

Integration and management of the new network will be carried out by Vanco, which is basically stitching together technology from a variety of carriers to provide the service.

Allen Timpany, Vanco's chief executive, believes large, integrated telecoms companies cannot build and maintain a global network while servicing customers adequately. Instead they should become utilities, providing network capacity at more cost-effective levels and let the more nimble hi-tech experts get on with coming up with clever, value-added solutions for clients.

Yesterday's news is more evidence that Mr Timpany's views are gathering support. The shares nudged up 2.5p to 277.5p but are well off their recent high of 348p and are worth tucking away for the long term.

New hip technology may be a winner for Corin

Far from limping along, shares in Corin, the hip and knee replacement manufacturer, have been positively sprinting in the past two years. From a low of 112p shortly after the company floated in 2002, the shares closed yesterday at 335p - despite an early fall to 320p - on the back of a trading statement that could at best be described as mixed.

Corin admitted yesterday that dollar weakness and disappointing sales in Japan, Australia and Turkey would mean profit would be lower than the market expected. At the same time, it looks as though FDA approval for Comet, the company's metal-on-metal resurfacing hip replacement technology, may come six months ahead of schedule.

Corin is trying to cash in on the baby-boom generation, many of whom are hoping to enjoy long and active retirements. By aiming their products at 45-65 year olds, it hopes that its replacement joints will help customers stay on the golf course longer than they otherwise might.

Much is at stake with Comet. The regulatory approval, which looks like being granted, could lead to a big boost in sales and profit. The technology is used in all of Corin's other markets - but any delays in Comet approval plus a failure to turn around its underperforming business units could leave investors wishing they had hobbled off in a different direction.

The shares have always been high risk, and that situation has not changed. There is a takeover premium in the price which might put off new buyers, but anyone holding the stock should know the risks involved and hold.

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