Last close As at 05/08/2026
GBP1.85
▲ −7.00 (−3.65%)
Market capitalisation
GBP105m
Research: Industrials
Solid State has announced the acquisition of Pacer Technologies, a value-added distributor of opto-electronic components and displays, for c £3.7m cash. Although the transaction is earnings enhancing, triggering a 4.0% uplift in the FY20 consensus EPS, the share price has not moved materially in response to the news and we believe the shares continue to trade at a significant discount to peers.
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Solid State |
Acquisition of Pacer Technologies
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Technology |
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13 November 2018 |
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Solid State is a research client of Edison Investment Research Limited |
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Solid State has announced the acquisition of Pacer Technologies, a value-added distributor of opto-electronic components and displays, for c £3.7m cash. Although the transaction is earnings enhancing, triggering a 4.0% uplift in the FY20 consensus EPS, the share price has not moved materially in response to the news and we believe the shares continue to trade at a significant discount to peers.
Highly complementary to existing business
Pacer is headquartered near Reading, UK with a satellite sales office in Florida, providing a base from which the group can address the US market. Pacer’s Weymouth operation, which is where its design capability is centred, includes a small Class 100 cleanroom where opto-electronic sub-systems are currently assembled, potentially extending the value-added offer provided by the rest of the group, in our view. Pacer was founded in 1989 and has expanded its portfolio from photonics-based components to include displays, sensors, LEDs and a wide range of other light-based components and systems. Like Solid State’s value-added distribution division, Pacer’s offer is based on a highly informed technical sale. If an off-the-shelf solution does not exist, Pacer will design and build a tailor-made one, which is similar in philosophy to Solid State’s manufacturing division. Around 40% of Pacer’s revenues are derived from exports.
Immediately earnings enhancing
Pacer reported £15.2m revenues for the year ended March 2018 and £0.4m profit before tax. Net debt, which will be assumed by Solid State, totalled £1.5m at the end of March 2018. The c £3.7m consideration is primarily being settled through £6.0m new term loans, payable over three years. The group has also put a £3.5m revolving credit facility in place to cover increased working capital requirements. Consensus estimates model incremental revenues and profits from the transaction at the levels reported for the year ended March 2018, giving scope for upgrades as the integration of the new operation progresses.
Valuation: Trading at a discount to peers
Solid State’s share price has not moved materially in response to the news of the transaction. At current levels, the shares continue to trade on prospective consensus P/E multiples that are at a discount to the mean for both our sample of specialist manufacturing companies (11.5x for Solid State vs 17.9x for peers) and our sample of value-added distributors (11.5x vs 18.3x). This indicates there is potential for share price upside, especially if the earnings upgrade potential of this transaction is realised.
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Consensus estimates
Source: Company data, broker consensus. Note: *Adjusted for exceptionals, share-based payments and amortisation of acquisition intangibles. |
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