Solid State — H119 results as expected, bar DPS increase

Solid State (LSE: SOLI)

Last close As at 20/12/2024

GBP1.28

0.00 (0.00%)

Market capitalisation

GBP73m

More on this equity

Research: Industrials

Solid State — H119 results as expected, bar DPS increase

As flagged in the trading update last month, Solid State’s H119 results show mid-single digit increases in group revenues and EPS. The order book at end H119 was 64% higher than a year previously, underpinning management’s expectations of an improved H219 performance in Manufacturing. Although consensus estimates show the acquisition of Pacer Technologies, announced a week ago, delivering meaningful earnings growth in FY20, the shares continue to trade at a significant discount to peers.

Analyst avatar placeholder

Written by

Industrials

Solid State

H119 results as expected, bar DPS increase

Technology

QuickView

20 November 2018

Price

316p

Market cap

£27m

Share price graph

Share details

Code

SOLI

Listing

AIM

Shares in issue

8.5m

Business description

Solid State is a high value-add manufacturer and specialist design-in distributor to the electronics industry. It has expertise in industrial/ruggedised computers, electronic components, antennas, microwave systems, secure communications systems and battery power solutions.

Bull

Added-value design capability supports long-term relationships with customers and supports higher margins.

Military and aerospace expertise helped VPT win power conversion solutions franchise.

Pacer acquisition adds to value-added distribution portfolio with little overlap.

Bear

Delays affecting high value-added manufacturing projects for government-funded and major Infrastructure programmes are commonplace.

Revenue development dependent on OEM customers’ sales and marketing activity.

Interest on loan to fund Pacer transaction a drag on profits.

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Solid State is a research client of Edison Investment Research Limited

As flagged in the trading update last month, Solid State’s H119 results show mid-single digit increases in group revenues and EPS. The order book at end H119 was 64% higher than a year previously, underpinning management’s expectations of an improved H219 performance in Manufacturing. Although consensus estimates show the acquisition of Pacer Technologies, announced a week ago, delivering meaningful earnings growth in FY20, the shares continue to trade at a significant discount to peers.

Strong growth in value-added distribution

Group H119 revenues rose by £1.0m y-o-y to £23.5m. in total, 51% of the revenues were from the value-added distribution division. Strong underlying growth of 13% y-o-y was augmented by a c £1.0m one-off order and c £0.2m forex tailwinds. Some low-margin manufacturing business delivered in H118 was not repeated, resulting in an 11% y-o-y decline in divisional revenues but contributing to a 70bp improvement in group gross margin. Adjusted diluted EPS rose by 5% to 16.9p, encouraging the board to raise the dividend by 5% to 4.2p/share. Cash (there was no debt) rose by £1.2m to £1.8m, benefitting from £0.9m advanced payments for projects in H219.

Order book underpins H2 manufacturing recovery

The order book at end H119 was £29.6m (64% higher than Sept 2018), of which £18.1m was scheduled for delivery in H219. This includes initial deliveries under the contracts totalling £4.3m for battery packs powering warehouse robots (manufacturing) and the $3.2m contract for the provision of VPT’s military grade power supplies (distribution). Noting the strong order book, management expects an improved manufacturing revenue performance in the second half. It also expects additional business from securing the exclusive VPT franchise, which was announced in April. Consensus estimates remain unchanged after upgrades following the October trading update and the Pacer acquisition, other than increases to DPS of 0.1p and 0.3p per share for FY19 and FY20 respectively.

Valuation: Trading at a discount to peers

The share price has declined from 321p following news of the Pacer acquisition. At current levels, the shares are trading on prospective consensus P/E multiples a discount to the mean for both our sample of specialist manufacturing companies (11.4x for Solid State vs 17.9x for peers) and our sample of value-added distributors (11.4x vs 18.3x). This indicates there is potential for share price upside once the group can demonstrate meaningful profit growth.

Consensus estimates

Year
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/17

40.0

3.1

31.4

12.0

10.1

3.8

03/18

46.3

3.0

30.9

12.0

10.2

3.8

03/19e

53.2

2.8

27.6

12.2

11.4

3.9

03/20e

65.0

2.9

28.5

12.4

11.1

3.9

Source: Company data, broker consensus. Note: *Adjusted for exceptionals, share-based payments and amortisation of acquisition intangibles.

General disclaimer and copyright

This report has been commissioned by Solid State and prepared and issued by Edison, in consideration of a fee payable by Solid State. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Solid State

View All

Latest from the Industrials sector

View All Industrials content

Industrials

Carr’s Group — At an inflexion point

Solid State_resized

Industrials

Solid State — Interim results

Research: TMT

Thin Film Electronics — Destocking holds back revenue development

Thinfilm’s results for the nine months ended September 2018 show that Q318 was adversely affected by the end-customer destocking of the anti-theft (EAS) tags. We therefore revise our estimates downwards and cut our indicative valuation from NOK1.92/share to NOK1.68p/share. However, we are encouraged that Apple recently launched iPhones with native background, NFC tag read functionality. This is generating renewed interest among brand owners for Thinfilm’s NFC solutions, underpinning management’s expectations of a strong NFC tag ramp-up during H219.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free