CML Microsystems – semiconductor group may well have gone through the worst, now ready to run, shares 235p, TP 290p

19.06.2025

This could be a real gamble.

Next Tuesday morning, 24th June, will see the Maldon-based semiconductor maker CML Microsystems (LON:CML) reporting its end-March 2025 Final Results.

They are not expected to be very good, with broadly flat sales, but with more than halved profits and a continuation of challenging markets.

However, the group over the last few years has been strategically focused upon building up its semiconductor portfolio and is looking to expand its markets.

The Business

The £39m-capitalised CML develops mixed-signal, radio frequency (RF) and microwave semiconductors for the global communications markets.

The group utilises a combination of outsourced manufacturing and in-house testing with trading operations in the UK, Asia and the USA.

CML targets sub-segments within the communication markets with strong growth profiles and high barriers to entry.

It is a supplier of high-performance RF products and mixed-signal baseband/modem processors across multiple wireless voice and data communication markets.

It has secured a diverse, blue-chip customer base, including some of the world's leading commercial and industrial product manufacturers.

Growth in its end markets is being driven by factors such as the appetite for data to be transmitted faster and more securely, the upgrading of telecoms infrastructure around the world and the growing prevalence of private commercial wireless networks for voice and/or data communications linked to the industrial internet of things (IIoT).

The firm offers its services across markets, such as wireless and satellite, network infrastructure, Internet of Things (IoT), and aerospace and defence.

Its high frequency, high bandwidth monolithic microwave integrated circuits (MMICs) targeting RF and millimeter wave (mmWave), support markets, such as fifth generation (5G), satellite and IoT.

Latest Trading Update

On Thursday 27th March, just four days ahead of its year-end, the group reported that the market environment through the second half of the financial year had continued to be challenging, with the softness from industrial markets persisting, particularly affecting established customers for the group’s anchor products.

“Nevertheless, good progress has been made with expanding the opportunity pipeline for the enlarged product portfolio and there are encouraging signs that we may be at, or very near, the bottom of the inventory correction that has featured strongly across recent reporting periods.

In recent years, the group has significantly expanded its semiconductor product portfolio, both organically and through acquisition.

These innovative solutions have shown early positive signs of market acceptance, evidenced by strong growth in the opportunity pipeline.

We are confident that they will drive future growth, and through the ongoing penetration of adjacent markets, help mitigate the impact of demand fluctuations across some of the Group's traditional end-market areas.

Our global teams remain focused on accelerating the launch and promotion of these new products, and we are actively investing in R&D to ensure we remain well-positioned moving forward.

While the short-term outlook remains subdued, our strategic focus on innovation and product diversification will pave the way for recovery and growth in the coming periods.”

The Equity

There are some 16.55m shares in issue.

The larger holders include Otus Capital Management (11.02%), Premier Fund Managers (11.0%), Christopher Gurry, CEO (7.94%), GPIM (5.07%), and Nathan Zommer, Dir (4.45%).

Broker’s View

Analyst Martin O’Sullivan, at Shore Capital Markets, has stated that the Trading Update showed that:

“The semiconductor design and manufacturing specialist for mixed-signal, RF and microwave semiconductors for global communications markets has provided a trading update for the year ending 31 March 2025 (“FY25F”), indicating revenue and adjusted EBITDA of c.£23m and £5m, respectively.

A backdrop of continued challenging market conditions in the second half of the financial year led to persistent softness in industrial sectors, particularly impacting long-standing customers of the Group’s core products.”

The broker goes on to conclude that:

“We believe short-term market volatility can create the best buying opportunities for investors who can look beyond immediate setbacks and focus on a company’s long-term potential.

Such is the case with CML at present, and our overarching view is that the balance of medium-term opportunity versus risk is significantly underestimated in the current market price.

CML remains well-funded in cash, has no bank debt, is cash generative and has paid dividends every year since FY11A.

We see significant upside potential for investors over the medium-term.“

As yet, he has not published his 2026 and 2027 estimates, possibly awaiting the 2025 figures next week.

For the year to end-March 2025 he goes for revenues to have barely moved at £23.0m (£22.9m), but with adjusted pre-tax profits having more than halved to £1.6m (£3.8m), slicing earnings in the last year to 7.9p (19.4p) per share, but with the group maintaining its 11p a share dividend (uncovered in 2025).

My View

This debt-free group boasts some £9m in cash in its balance sheet, compared to its £39m market capitalisation.

Next week’s statement could well be a ‘tale of woe’ but, as an ever-eternal optimist, I feel that the group could well allude to strategic new markets for its growing semiconductor portfolio, especially in the space and satellite marketplace.

Its lightly-traded shares, which just over two years ago were up to 595p, are currently trading at around 235p, after touching a recent low at 195p in late-March.

They are backed by a group net asset value of around 310p per share.

The question I will be asking next week – is this a ‘turning point’ for the group as it breaks into new markets?

Satellite market holds big potential

Obviously, ahead of next Tuesday's statement the shares are a gamble – however if tempted to take a small position in the stock perhaps buying half your commitment now and then the balance after the report might well prove the sensible course.

I now set a’ total gamble’ Target Price at 290p.

(Profile 19.06.25 @ 235p setting a Target Price of 290p)