Investors who piled into Alcatel-Lucent on the back of turnround plans, making this notorious dog one of Europe’s best-performing stocks in 2013, saw their reward yesterday. On the financial front, progress was evident in the telecoms equipment maker’s 2013 numbers. Gross margins improved significantly – from 30 per cent in 2012 to 32.2 per cent last year and over 34 per cent in the final quarter. Lying behind this advance was a fall of more than 5 per cent in 2013 operating expenses; although revenues grew modestly, the company lowered its fixed costs by €360m. Annual free cash flow was still negative but, at €114m before the restructuring costs, only a third of 2012’s outflow figure.

The balance sheet, too, has been bolstered, not least by the near-€1bn rights issue last year. And judging from the latest sale of the enterprise business to China Huaxin, the asset sale programme is also on track. So the shares rallied another 9 per cent. At €3.30, they have almost quintupled in less than two years.

All of which adds up to classic turnround stuff. But investors need to ask what, if any, obstacles might prevent the pace from continuing. One concern has to be whether gross margins will be affected as Chinese LTE build-out work flows through, and whether an improving business mix in the US can offset this. Another is whether cost-cutting will remain on course. New boss Michel Combes always looked to have set the targets realistically (so 2013’s €360m nicely surpassed the €350m objective). Even so, extracting €1bn from fixed costs by 2015 is no small ask. The share price gains, meanwhile, mean that the enterprise value is about seven times the 2014 consensus earnings estimate, in line with the rating at sector leader Ericsson. On the back of management forecasts and delivery so far, this is merited. But it leaves little margin for error.