The Investment Column: Ultra

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The Independent Online
The Investment Column: Ultra

ULTRA ELECTRONICS is in what it believes are niche, hi-tech markets - it makes the computers that control aeroplane's landing gear - and has visible earnings prospects. It caters for both the civil and military aviation markets. Are these things as risk-free as Ultra implies?

The group yesterday disclosed that its orderbook, at pounds 286m, is almost 20 per cent up on this time last year. The growth is coming from sonobuoys, which detect submarines. Having bought out its US rivals, Ultra is market leader with 50 per cent of global sales. It is confident because the US government is expected to up defence spending by 7 per cent annually in coming years. Meanwhile, Ultra enjoys preferred supplier status to Airbus, which is now building 30 planes a month.

Analysts expect full-year pre-tax profits of pounds 23m and earnings of 24.4p this year. The shares, unchanged at 413.5p on are on a forward p/e of 17, which seems low. One reason for the discount is that Ultra is still integrating two acquisitions, which it has discovered do not possess the "Ultra culture". Another is that defence contracts are, whatever Ultra claims, inescapably risky. The shares are fairly priced.

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