Filtronic — FY24 ahead of expectations

Filtronic (AIM: FTC)

Last close As at 19/07/2024

GBP0.75

−0.75 (−0.99%)

Market capitalisation

GBP165m

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Research: TMT

Filtronic — FY24 ahead of expectations

Filtronic’s year-end trading update confirmed that it expects to report FY24 revenue and adjusted EBITDA ahead of our forecasts. Trading in H2 benefited from strong demand from the space market, which we expect to continue into FY25. The company confirmed that it has ramped its production capability to meet this higher level of demand and continues to invest in further capacity expansion to provide flexibility and support for future growth.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Filtronic

FY24 ahead of expectations

FY24 trading update

Tech hardware and equipment

21 June 2024

Price

71p

Market cap

£154m

Net debt (£m) at end FY24
(including PPE lease liabilities)

5.2

Shares in issue

218.0m

Free float

66.1%

Code

FTC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

22.4

91.9

407.1

Rel (local)

24.6

79.9

364.1

52-week high/low

73p

14p

Business description

Filtronic is a designer and manufacturer of advanced radio frequency communications products, supplying a number of market sectors including mobile telecommunications infrastructure, public safety, defence and aerospace.

<Insert the business description here, up to a maximum of seven lines. To paste text here, use 'PASTE UNFORMATTED TEXT' on the Edison Toolbar>

Next events

FY24 results

30 July 2024

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Filtronic is a research client of Edison Investment Research Limited

Filtronic’s year-end trading update confirmed that it expects to report FY24 revenue and adjusted EBITDA ahead of our forecasts. Trading in H2 benefited from strong demand from the space market, which we expect to continue into FY25. The company confirmed that it has ramped its production capability to meet this higher level of demand and continues to invest in further capacity expansion to provide flexibility and support for future growth.

Year end

Revenue (£m)

EBITDA* (£m)

PBT*
(£m)

Diluted
EPS* (p)

DPS
(p)

P/E
(x)

05/22

17.1

2.8

1.5

0.53

0.00

133.0

05/23

16.3

1.3

0.1

0.06

0.00

N/A

05/24e

25.4

4.8

3.3

1.50

0.00

47.2

05/25e

35.1

7.9

5.9

2.64

0.00

26.9

Note: *EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY24 trading ahead of expectations

Filtronic expects to report FY24 revenue of c £25.4m (4.7% ahead of our forecast) and adjusted EBITDA of at least £4.8m (11.9% ahead of our forecast). Gross cash was £7.2m at year-end (our forecast £3.5m) and cash net of PPE lease liabilities was £5.2m (our forecast £2.5m). We have revised our forecasts to reflect the expected outturn in FY24, which results in a normalised diluted EPS upgrade of 18%. For FY25, we maintain our revenue and profit forecasts but assume a better net cash position at year-end of £5.8m (vs our previous £4.0m forecast).

Building the infrastructure to support growth

Filtronic noted that in H2 it scaled business operations significantly to meet strong demand across its core markets. In particular, it ramped production of E-band Cerus 32 solid state power amplifiers (SSPAs) for use in SpaceX’s Starlink constellation and is now delivering in line with ongoing customer demand. It is further investing in its manufacturing capabilities to support future growth and to provide flexibility as the opportunity pipeline converts. Filtronic also highlighted good progress in the aerospace and defence market, noting contracts won with BAE, QinetiQ and DSTL, and we believe it is well positioned to win further business from large defence primes as defence spending responds to growing global threats.

Valuation: Growing confidence

The stock has gained 45% since we last wrote in April, in our view reflecting growing confidence in the growth potential of the business following the strategic partnership with SpaceX, and now trades on a P/E of 47.2x FY24e and 26.9x FY25e. Using a 10-year reverse discounted cash flow with a WACC of 8%, the current share price is arrived at using revenue growth of 13% per year for FY26–34e and EBITDA margins growing from an estimated 22.4% in FY25 to 24.9% over the period. In our view, the relationship with SpaceX, as well as growing penetration of the aerospace and defence market, provide avenues for sustainable growth.

Changes to forecasts

Exhibit 1: Changes to forecasts

£m

FY24e old

FY24e new

Change

y-o-y

FY25e old

FY25e new

Change

y-o-y

Revenues

24.2

25.4

4.7%

56.0%

35.1

35.1

-0.1%

38.4%

EBITDA

4.3

4.8

11.9%

278.2%

7.9

7.9

0.0%

63.6%

EBITDA margin

17.7%

18.9%

1.2pp

11.1pp

22.4%

22.4%

0.0pp

3.5pp

Normalised/reported operating profit

3.0

3.5

17.0%

1386.8%

6.2

6.2

0.0%

75.4%

Normalised/reported operating margin

12.4%

13.9%

1.5pp

12.4pp

17.6%

17.6%

0.0pp

3.7pp

Normalised/reported PBT

2.8

3.3

18.4%

N/A

5.9

5.9

0.0%

80.7%

Normalised/reported net income

2.8

3.3

18.4%

N/A

5.9

5.9

0.0%

80.7%

Normalised basic EPS (p)

1.29

1.52

18.4%

N/A

2.74

2.74

0.0%

79.9%

Normalised diluted EPS (p)

1.27

1.50

18.4%

N/A

2.64

2.64

0.0%

75.3%

Reported basic EPS (p)

1.29

1.52

18.4%

N/A

2.74

2.74

0.0%

79.9%

Net debt/(cash)

(2.5)

(5.2)

105.9%

219.5%

(4.0)

(5.8)

45.8%

12.5%

Source: Edison Investment Research


Exhibit 2: Financial summary

Year-end May

£m

2021

2022

2023

2024e

2025e

INCOME STATEMENT

Revenue

 

 

15.6

17.1

16.3

25.4

35.1

EBITDA

 

 

1.8

2.8

1.3

4.8

7.9

Operating profit (before amort. and excepts.)

 

0.6

1.6

0.2

3.5

6.2

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.1

0.4

0.0

0.0

0.0

Reported operating profit

0.6

2.0

0.2

3.5

6.2

Net Interest

(0.4)

(0.1)

(0.2)

(0.2)

(0.2)

Exceptionals

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

0.1

1.5

0.1

3.3

5.9

Profit Before Tax (reported)

 

 

0.2

1.9

0.1

3.3

5.9

Reported tax

(0.2)

(0.4)

0.4

0.0

0.0

Profit After Tax (norm)

0.3

1.2

0.1

3.3

5.9

Profit After Tax (reported)

0.1

1.5

0.5

3.3

5.9

Discontinued operations

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

0.3

1.2

0.1

3.3

5.9

Net income (reported)

0.1

1.5

0.5

3.3

5.9

Average Number of Shares Outstanding (m)

213

215

215

216

217

EPS - normalised (p)

 

 

0.14

0.54

0.07

1.52

2.74

EPS - normalised fully diluted (p)

 

 

0.14

0.53

0.06

1.50

2.64

EPS - basic reported (p)

 

 

0.03

0.68

0.22

1.52

2.74

Dividend (p)

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

6.2

5.4

7.4

9.0

11.4

Intangible Assets

1.7

1.5

1.8

2.0

2.2

Tangible Assets

3.3

3.0

4.3

5.8

7.9

Investments & other

1.2

0.9

1.3

1.3

1.3

Current Assets

 

 

8.4

11.1

10.7

15.9

20.4

Stocks

2.2

2.6

2.8

3.2

4.4

Debtors

3.3

4.5

5.3

5.6

8.2

Cash & cash equivalents

2.9

4.0

2.6

7.2

7.8

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(3.6)

(4.0)

(4.8)

(7.6)

(8.5)

Creditors

(2.4)

(3.0)

(3.7)

(5.3)

(7.2)

Short term borrowings including lease liabilities

(0.6)

(0.5)

(0.6)

(0.8)

(0.8)

Other

(0.6)

(0.5)

(0.5)

(1.5)

(0.5)

Long Term Liabilities

 

 

(1.7)

(1.4)

(1.7)

(2.5)

(2.5)

Long term borrowings

(1.6)

(1.3)

(1.7)

(2.5)

(2.5)

Other long term liabilities

(0.1)

(0.1)

(0.0)

(0.0)

(0.0)

Net Assets

 

 

9.4

11.0

11.5

14.8

20.8

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

9.4

11.0

11.5

14.8

20.8

CASH FLOW

Op Cash Flow before WC and tax

1.8

2.8

1.3

4.8

7.9

Working capital

1.1

(0.8)

(0.4)

1.9

(2.9)

Exceptional & other

(1.0)

0.3

0.0

0.0

0.0

Tax

0.5

0.0

0.0

0.0

0.0

Operating Cash Flow

 

 

2.5

2.3

0.9

6.7

4.9

Capex (including capitalised R&D)

(0.4)

(0.3)

(1.5)

(1.3)

(3.4)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Net interest

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

Equity financing

0.0

0.0

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

1.9

1.9

(0.8)

5.2

1.3

Opening net debt/(cash)

 

 

0.7

(0.8)

(2.2)

(0.3)

(3.9)

FX

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

(0.4)

(0.4)

(1.1)

(1.6)

(0.6)

Closing net debt/(cash) including lease liabilities

 

(0.8)

(2.2)

(0.3)

(3.9)

(4.5)

Property lease liabilities

1.2

1.0

1.3

1.3

1.3

Closing net debt/(cash)

 

 

(2.0)

(3.2)

(1.6)

(5.2)

(5.8)

Source: Filtronic, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Filtronic and prepared and issued by Edison, in consideration of a fee payable by Filtronic. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Filtronic and prepared and issued by Edison, in consideration of a fee payable by Filtronic. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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