Ultra is a sound defence

THE West's conflict with Afghanistan should make defence shares the best offensive move for investors at this time of market uncertainty. But as a recent profits warning from GKN showed, the prospect of rising defence spending is offset by revenue shortfalls from depressed commercial aviation operations.

With a quarter of its sales in the civil sector, Ultra Electronics is not immune from the chill wind blowing through the airline industry and its Airbus landing gear computers business will almost certainly take a knock. That would be tempered by its airport baggage tracking and security systems and its Ocean Systems security printer operation for producing company identity cards and passes.

Meanwhile, the signals from the defence operations are very bright. The firm's Texas-based command and control systems plant has put workers on a 50-hour week. Ultra's business making missile coolant systems is well-placed to benefit from the $200bn (£137bn) Joint Strike Fighter contract awarded last week to Lockheed-Martin, which also has a factory in the Lonestar state. Moreover Ultra is adapting the coolant system for use as an aircraft weapons release mechanism.

Orders for the first batch of Eurofighters, for which Ultra makes joysticks and cockpit parts, are in the bag, while a production contract for systems for a new battlefield taxi is on the way. With a world-leading presence in submarine-detecting sonobuoys underpinning core earnings, chief executive Julian Blough said the order book is now at all-time highs.

Blough's record at the group, after leading a management buyout from TI Group in the early 1990s, is one of consistent and dependable growth. Interest cover is at six times and, despite an increased tax charge this year, analysts are ticking up recommendations. At just 13 times earnings, Ultra looks like an inexpensive safe haven.