CML Microsystems – today’s results much as expected, but broker’s 29-page research note points the way, shares 230p TP 290p

24.06.2025

This morning’s Full Year Results to end-March, from CML Microsystems (LON:CML), which develops mixed-signal, RF and microwave semiconductors for the global communications markets, were much up to expectations.

The Business

CML develops mixed-signal, RF and microwave semiconductors for global communications markets.

The group utilises a combination of outsourced manufacturing and in-house testing with trading operations in the UK, Asia and USA. CML targets sub-segments within Communication markets with strong growth profiles and high barriers to entry.

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 group is cash-generative, has no debt and is dividend paying.

Today’s Results

Revenues were steady at £22.90m (£22.89m), pre-tax profits were down to £0.88m (£1.94m) having been hit by higher costs including a factory relocation, with cash balances almost halved at £9.92m (£18.21m), following acquisition costs of £3.79m, research and development of £5.50m capex of £0.6m, share buybacks of £0.9m and dividends of £1.77m.

CEO Chris Gurry stated that:

"With the successful completion of the operational phase of a multi-year transformational strategy, the business is now poised to enter a new chapter focused on sustainable growth and long-term value creation.

Over this period, we have fundamentally reshaped the business, enhancing efficiency, expanding our technology capabilities, and significantly broadening our product portfolio.

Supported by a strong financial foundation and a disciplined growth strategy, we are well-equipped to navigate current challenges and intend to continue investing in innovation, customer engagement, and strategic partnerships that will drive the business forward."

Broker’s View

Analyst Martin O’Sullivan, at Shore Capital Markets, has today published a 29-page research note on the group, declaring that it had made strategic gains amid market headwinds.

CML’s full year results for the 12 months to end-March detailed a resilient trading performance, with revenue and adjusted EBITDA broadly flat and down 9% year-on-year, respectively, to £22.9m and £5.2m.

While market conditions remain temporarily challenging and difficult to forecast, CML is well-positioned to capitalise on significant growth opportunities as they improve, supported by its most extensive product portfolio to date and exposure to multiple structural growth markets.

The analyst comments on the group’s valuation states that:

“At 235p, CML’s equity is valued at 5.3x EV/EBITDA and 1.2x EV/Sales for FY25A. With a healthy dividend yield of 4.7%, the stock offers a compelling combination of income and value.

The valuation level suggests that CML’s growth potential is currently mispriced.

We see strong medium-term upside potential for the share price.”

The broker rounded up his research piece making the following concluding observations:

• CML’s financial performance has demonstrated strong growth, with 15% revenue and 18% adjusted EBITDA CAGRs from FY21A to FY25A.

• Since 2021, CML has rapidly expanded into high-growth markets, diversifying its products, enhancing sales channels, and acquiring PRFI and MwT.

• Following the acquisition of MwT, CML is successfully leveraging product development synergies alongside complementary marketing and sales channels.

• The company’s high-quality products are supported by extensive design expertise, engineering capabilities and exceptional after-sales service.

• CML is well-positioned to capitalise on positive structural growth trends in its target markets, notably in high-performance / next-generation network infrastructure, satellite communications and Industrial IoT.

• It has a proven track record of securing significant design wins in the emerging markets it serves; and remains focused on targeting high-growth sub-segments within the communications sector that feature high barriers to entry.

• The company is committed to continuous product development and expansion through R&D, substantially broadening its addressable markets.

• CML effectively attracts and retains key talent, with 40% of its team having over a decade of tenure at the company.

• The company maintains a strong financial position, being cash generative, net cash positive and free of debt.

My View

I note the comments from Chairman Nigel Clark:

“When providing guidance, we endeavour to exceed expectations and our historic record has been good; however, reliable forecasting in the current global climate is proving very difficult.

Operating profit is the true indicator of performance and this remains our focus.

For the coming full financial year, we expect a marginally positive outcome but with profitability heavily weighted to the second-half period.

Having spent the last few years preparing the business for its next growth phase, the foundations are now in place.

The Board is confident that the business is well placed to deliver on its growth ambitions, across an enlarged product set and corresponding increased market opportunity.”

Looking at today’s announcement I remain convinced that CML is looking good going forward, with a growing product portfolio being offered into expanding market-places – in due course the bottom line will be witnessing big expansion in its strength.

Still a gamble until more proof is provided, the shares which closed at 227p last night, have moved higher to 230p as I write.

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