• Mark Watson-Mitchell

Filtronic – ready to catch the waves

Next Tuesday morning will see the interim results from this technology hardware and equipment group.


Advanced radio frequency communication (RF) products the major part of this group’s business.


Hopes are that the results should be good and lead to positive estimates for the full year.


The business


The Leeds-based Filtronic (LON:FTC) company, which was set up in 1977, is both a designer and a manufacturer of high-performance products which are critical to a range of challenging RF, microwave and millimeter wave applications, including telecommunications infrastructure, aerospace and defence, space, critical communications and test and measurement.


Particularly, the group is a well-established provider of RF subsystems to the UK defence industry with multi‐year contracts for existing radar platforms.


In addition, it provides contract design and microelectronic manufacturing services, RF design and testing, and process engineering services.


Sales


It designs, develops, manufactures and sells its advanced radio frequency communications equipment internationally.


Last year its sales split was - UK 30%, the Americas 27%, Europe 27%, and the Rest of the World 16%.


In the current year the group is looking to expand its sales reach by agreeing terms with a selection of agents and distributors in Europe, Asia and the US.


Equity


There are some 214.4m shares in issue.


The larger shareholders include Mark and Diana Dixon (24.2%), Hargreaves Lansdown Stockbrokers (10.8%), Canaccord Genuity Group (10.5%), David and Monique Newlands (7.97%), River and Mercantile Asset Management (5.28%), Marlborough Investment Management International (3.58%), John Rockliff (3.41%), Hargreaves Lansdown Asset Management (3.35%), M&G Investment Management (1.23%) and IG Markets (1.09%).


Brokers Views


Lorne Daniel and Michael Hill, both analysts with brokers finnCap, are keen on this £25m capitalised company.


They are estimating that the current year to end May will see group revenues rise from £15.6m to £18.0m, while adjusted pre-tax profits could rise from £0.2m to £0.5m.


The analysts specifically focus upon the group’s potential as 5G really gets underway. It has a contract with a leading US RF test equipment company, initially for a pilot order, but it could lead to far greater business.


Prior to the interims the brokers have a 15p price objective on the group’s shares.


Anne Crow and Dan Ridsdale of Edison Investment Research have similar estimates out for this year. They are going for pre-tax profits to rise to £0.7m, worth 0.34p per share in earnings.


I do recommend readers, who now have an interest in what Filtronic does, to catch Edison Group’s Dan Ridsdale interview with the CEO Richard Gibbs (on https://www.youtube.com/watch?v=9t9IJP6Fad8 ).


My View


The winning of that pilot order from the US could well prove to be strategically important.

The group is now beginning to build up its production to cope with the significant growth expected from the 5G roll-out and what leads on from that.


The new management team is making a bigger play upon its designing and manufacturing of its RF components and subsystems, where it is acknowledged as a sector leader, and where the operating margins are premium.


The group’s shares, which have been up to 13.25p in the last year, are currently trading at 11.6p.


At that level I do feel that they are undervalued and are very capable of a significant uplift on further good news.


My Target Price is now set at 14.5p.

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