Investment Column: Ultra defends its premium rating

Investors in Ultra Electronics, the MBO which floated at 250p last September, have had a switchback ride. Shares in the electronic systems group rose to 332p in January before dipping to 251p a couple of months ago. But profits have moved steadily higher reflecting a strong performance from both its air and sea systems businesses.

Of the overall 24 per cent rise in sales for the six months to June to pounds 72m and 17 per cent jump in pre-tax profits to pounds 9m, air systems' sales rose a quarter to pounds 46m, of which 16 per cent was organic and sea systems' sales rose 22 per cent to pounds 26m, virtually all organic growth.

New orders led to a slight dilution in profit margins because of the need to spend on research and development. The order book has grown from pounds 174m at the year-end to pounds 230m in June, including pounds 9m from last year's acquisitions in the US - Flightline Electronics and EMS.

Both the military and civilian aerospace markets are buoyant at the moment. The group's biggest single contract, to supply equipment to the Nimrod 2000 programme, has grown to pounds 53m, spread over the next five years. On the sea side, the Batch II Trafalgar submarine programme and the Korean destroyer programme should bring in new orders.

Defence-based companies do not normally get or deserve a premium rating, but yesterday's figures beat expectations. Albert E Sharp has upgraded forecasts for the full year from pounds 17m to pounds 17.4m. In an otherwise weak market the shares rose 3.5p to 296p, putting them on a prospective p/e ratio of just under 16. That is cheaper than established rivals Smiths Industries and Cobham which enjoy a rating of around 20 times. Attractive.