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Market capitalisation
GBP105m
Research: Industrials
Solid State has made an excellent start to FY24 with strong continuing organic growth in H124 enhanced by a full period contribution from Custom Power. As a result, management anticipates better-than-expected revenues and PBT for the full year with market consensus rising by c 5% to £155m and £12.5m, respectively.
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Solid State |
Strong organic development in H124
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Industrials |
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31 October 2023 |
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Solid State is a research client of Edison Investment Research Limited |
Solid State has made an excellent start to FY24 with strong continuing organic growth in H124 enhanced by a full period contribution from Custom Power. As a result, management anticipates better-than-expected revenues and PBT for the full year with market consensus rising by c 5% to £155m and £12.5m, respectively.
Defence and security demand remains strong
H124 revenues were up by 48% at £88.0m (H123: £59.4m), or by over 35% on an organic basis. Custom Power was consolidated for the full period compared to just two months in H123, adding revenues which more than offset the FX headwind of just over £1m in H124, although this was lower than expected due to a more favourable outturn ($1.26/£) than management had used for guidance at the start of the year ($1.30/£). The revenue growth was primarily driven by £23m of shipments for the large NATO contract signed in November 2022, enhanced by follow-ons. These were at lower-than-normal EBITDA margins, but still mid-20s, which supported a 67% increase in PBT to in excess of £7.0m (H123: £4.2m). The resultant strong cash generation allowed the company to settle the outstanding deferred acquisition considerations of £5.7m and still pay down debt.
FY24 expectations increased again
While the company still faces challenges in the remainder of FY24, the strong start has led management to anticipate a better-than-expected outcome for the year, and market consensus for revenue and PBT have both increased by around 5%. The expectation is supported by around £60m of the £99m order backlog at the half year due for delivery in H224, providing 90% cover for revised H224 market consensus revenue expectations. Management also appears to remain on target to reduce FY24 net debt to around £3.0m (FY23: £8.1m). Clearly H224 consensus revenue is expected to be lower than H124 in the absence of the NATO contract and flat on H223, with potential for ongoing headwinds from FX and customer stock normalisation. Clients are managing down inventories as finance costs increase and supply chain issues ease, and this is expected to continue through H224. FY25 consensus expectations currently remain unchanged.
Valuation: Targeting 20% CAGR in TSR to 2030
Despite the recent share price decline, Solid State’s FY25 P/E discount against its peers has modestly fallen to around 15%. The economic and market challenges are deferring progress to the ambition of 20% CAGR in TSR by 2030, supported by a target of 17% CAGR in sales with 12% adjusted operating margins.
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Consensus estimates
Source: Company reports, broker consensus estimates |
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Research: TMT
MotorK’s Q323 results demonstrate continued growth momentum with revenue increasing by 25% y-o-y, underpinned by rising average contract value (ACV) and strong net revenue retention (NRR). Committed annual recurring revenue (ARR) reached €35.2m, providing robust visibility towards our revised FY23 ARR target of €37.2m. Execution continued on its enterprise sales strategy, demonstrated by the near tripling of the strategic pipeline and NRR of 149%. This underscores positive momentum through year-end and into 2024. We have moderated our forecasts, although we continue to forecast positive cash EBITDA in FY24.