At 11am on Thursday morning (31st October) this very interesting business will be holding its AGM in Sedgefield, County Durham – I would just love to be there and have a look around the various plant and premises – why?
The simple answer to that is that I consider Filtronics (LON:FTC) to be a growth winner over the next few years.
The £145m capitalised group is a designer and manufacturer of products for the aerospace, defence, space and telecoms infrastructure markets.
As a trusted provider of innovative RF solutions, it is currently working with BAE Systems, ESA, QinetiQ, SpaceX and UK Space, to name just a handful of its top-name clients.
In The Last Year
In looking at the group’s operational highlights within the last year or so I note that the company:
· Signed a 5-year Strategic Partnership with SpaceX, a market leader in low earth orbit (“LEO”) space communications, for the supply of Cerus solid-state power amplifier (“SSPA”) products at multiple frequency bands.
Given the customer’s preference for vertical integration, this is a significant testament to its ability to design and deliver best-in-class technology.
· It won a Contract award of £3.2m from the European Space Agency to develop a series of mmWave products with strategic importance for next-generation LEO constellations, including payload applications.
· The company secured various Contract wins from strategic target clients, BAE Maritime Services and QinetiQ, for £4.5m and £2.0m respectively for radar systems.
· The business launched and secured production orders for E-band derivative products from telecommunication infrastructure OEMs and several specialist private telecom network providers.
· Secured a fourth programme from DSTL to design and develop a tuneable filter solution for future defence radar applications.
· Won the King’s Award for Enterprise in Innovation recognising the group’s outstanding product development.
· Flexed the operation to meet growing market demand for our products demonstrating our ability to respond and scale the business rapidly and efficiently.
The Business
Filtronic, which has been at the forefront of RF communications for some 45 years, operates from three global manufacturing sites, with two engineering centres of excellence covering the full RF spectrum.
Its product range and wider technology capabilities are supported by company-owned IP and in-house knowledge, and it has an extensive patent portfolio.
Filtronic products are critical to a range of challenging RF, microwave and mmWave applications, including telecommunications infrastructure, aerospace and defence, space, test & measurement, and critical communications.
Compared with the microwave operating at traditional frequency bands, E-band microwave beams are narrow, which minimises interference between sites, enables dense site deployment, and facilitates the re-use of spectrum resources.
With experience and an innovative culture, the group enables creative solutions for highly complex RF challenges.
The group’s vision is to innovate and push the boundaries of what Is possible with RF, Microwave and mmWave communication, delivering transformative wireless solutions through design and manufacture leadership, connecting everyone everywhere.
New Premises
Early last month the group announced that it is relocating its Sedgefield site to a new, larger, purpose-built state-of-the-art facility on the same business park at NetPark, Sedgefield, County Durham in early 2025.
This move will double the operational footprint at its main UK site, facilitating a significant expansion in both capability and capacity.
CEO Nat Edington stated that:
"The increased manufacturing footprint and enhanced testing facilities in our new building is critical to the successful execution of our strategy.
We have reached a point where we have outgrown our existing building and are excited to move to a new facility that is purpose-built and meets our needs to give us the flexibility we need to continue growing our business."
Analyst’s Views
Edward Stacey and Kimberley Carstens at Cavendish Capital Markets are positive about the group’s prospects.
They have a Price Objective of 92p on its shares.
For the current year to end-May 2025, they estimate revenues rising nearly 60% to £40.5m (£25.4m), with adjusted pre-tax profits more than doubling to £7.7m (£3.4m) and increasing its earnings to 3.2p (1.4p) per share.
Analyst Katherine Thompson at Edison Investment Research looks for £39.9m sales, £7.1m profits and earnings of 3.02p per share.
She is particularly impressed by the group’s relationship with SpaceX and the potential to widen the customer base in the space market as well as the growing penetration of the aerospace and defence market, which all provide avenues for sustainable growth.
In My View
I really rate highly the growth prospects for this little group.
Just think, two years ago, its shares were trading on a 535 times historic price-to-earnings multiple; last year, that dropped to 54 times; this year, they are now on 19.7 times current year expectations.
There is a wide-open market for Filtronic to attack and I have a strong gut feeling that it will achieve!
The shares, which were up to 83p earlier last month, are currently trading at around the 63p level.
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