Shares in Ultra have soared by 30 per cent over the last week after its US operations won contracts worth pounds 33m to supply the US navy with sonobuoys - floating sonar devices which can be ejected from aircraft.
Demand for the devices has started to approach Cold War levels as the US military has stepped up its submarine monitoring programme. Ultra has also won a pounds 6.2m contract to equip Korean destroyers.
Yesterday the shares eased 4.5p to 442p, valuing the company at pounds 290m, after jumping more than pounds 1 last week.
The market was surprised by the new contracts because most of the business was won by UnderSea Sensor Systems, an Indiana-based group bought by Ultra at the end of last year.
Ultra spent pounds 19m last year acquiring UnderSea and PMES, a Staffordshire- based supplier of sonobuoys. Both are expected to require substantial investment which will depress profits in 1999. But analysts believe the market for Ultra's products will stay robust. "More navies and airforces want to monitor submarines," said one analyst.
Ultra has also benefited from Airbus' success at the end of last year in beating Boeing to a giant contract to supply British Airways. Ultra supplies computer controls for landing gear on the Airbus 320 aircraft.
Ian Yeoman, Ultra finance director, said the new order had helped boost its deliveries to Airbus by 43 per cent, while the group had improved its profit margins.
Industry observers yesterday began to question the sustainability of the company's share rating. Tony Lancelott of Albert E Sharp, the investment house, said: "It is dangerous to be gung-ho about the prospects, especially given that the defence market is not exactly the most exciting there is."
Analysts yesterday nudged up their forecasts to predict earnings of pounds 25m to pounds 28m in 2000, putting the company on a forward p/e of over 15 - a hold, according to Albert E Sharp.