Thursday tips round-up: Ultra Electronics, Monitise

20th Feb 2014 08:02

Some opportunities only come along once in a lifetime and Ultra Electronics seems to have been quick to spot one of these. In its biggest acquisition since 2008, the technology firm bought US-based 3 Phoenix Inc. for $70m down and another $17m in earn-outs. That is a very hefty price tag to pay for a company with annual profits of $5m. Why? It will allow Ultra to expand its offering of electronic suites for anti-submarine warfare, from sonar buoys for sub-detection to torpedo-detection systems. That comes at a time when the US Navy is gearing up for a switch towards the Pacific and a concomitant build up in naval assets there. Critically, that part of the defence budget seems to be immune to cuts. Ultra's shares, at more than 15 times earnings, are still good for the long term, says The Times' Tempus.Growth is a slippery concept as an investment thesis. Above all, it requires or a fine eye for detecting a company's true long-term prospects. For sceptics, to invest on the basis of promises of very high long-term growth rates is a recipe for disappointment. For others, such companies are the future. We saw a little bit of this on Wednesday with investors' reactions to the latest interim figures out of Monitise. The company, which runs platforms that allow people to make payments via their mobile phones, reported a 67% rise in revenues, but slightly higher than forecast operating losses. However, if you believe in the company's growth model then what matters are the prospects for growth, the fact that it is signing up new banks to take its service and moving into new geographies. In fact, Visa and its European counterpart in the recent past took up about 13% of the company. So they certainly are eyeing something, or think they do. Again, "you either buy into the growth model and forget earnings for the appreciable future, or you take profits on that strong price rise. The assumption continues to be that one day the company will be taken over, by Visa or anyone else. This one, then, is entirely down to your appetite for risk," writes The Times' Tempus.AB