Share of the week: A tech stock about to break out?

Our top share of the week can normally be found hawking its wares in the FTSE 350, but this week we've a problem.

With a 17% gain over the five days, Clarkson is pick of the bunch. However, we covered the ship broker's results a few days ago. We've covered the high-flying miners, paving slab winner Marshalls, and bid target Bovis Homes, too.

That's why we've cast our net a bit further, to the FTSE All-Share, and uncovered a gem in TT Electronics.

It's a company I covered many moons ago during my three-year stint at the Investors Chronicle, so know it reasonably well. It was a decent tip, too, but investors will have had to get their timing right, for TT shares have oscillated between 100p and 200p for over six years.

And now, after a couple of major restructurings, TT has had an incredible week. Its share price has gained 21% over the past few days, topping 200p briefly for the first time since summer 2014.

Full-year results stuck a firework under the shares this time. TT, which makes hardy sensors and controls able to cope with harsh conditions like altitude and low temperatures, returned to organic revenue growth in the second half.

A 20% increase in underlying pre-tax profit at constant currency to £26.9 million smashed City forecasts. At actual currencies the increase was 40% on revenue up 12% - or 3% at constant currency – to £570 million.

A 36% surge in earnings per share (EPS) gave management confidence to increase the dividend for the first time since the first half of 2014, now offering a prospective yield of around 3%.

TT's transportation sensing and control division is growing profits again, focusing on structural growth drivers including safety, emissions and power electronics, and bosses are talking up prospects around new products.

"There is momentum in the group, management is delivering and its strategy is working," said Andy Douglas, an analyst at broker Jefferies, "and there is more to play for with respect to top and bottom line growth and a higher quality of earnings."

Over at Numis Securities, City veteran David Larkam upgraded EPS forecasts for 2017 by 11% to 13.7p, and to 14.7p for 2018. An "undemanding" forward price/earnings (PE) ratio of 15 times gives a price target of 205p. The electricals sector trades on 18 times.

"More importantly the refocusing, operational improvements, new products and acquisition are laying the foundations for a more attractive higher return, higher growth specialist electronics group," says Larkam.

TT shares have done a lot in a short space of time, and there is much work still to be done here. However, there is a real sense that margins can improve further and that mangement is capable of continuing the turnaround. In the short-term, though, consolidating above that 200p level is a big ask.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.