Solid State — Update 25 May 2016

Solid State (LSE: SOLI)

Last close As at 04/11/2024

GBP2.45

10.00 (4.26%)

Market capitalisation

GBP140m

More on this equity

Research: Industrials

Solid State — Update 25 May 2016

Solid State

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Industrials

Solid State

Settlement of MoJ contract

Contract settlement

Electronic equipment

25 May 2016

Price

335p

Market cap

£28m

Net cash (£m) end March 2016 (assuming MoJ settlement received at end FY16)

0.35

Shares in issue

8.4m

Free float

73%

Code

SOLI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

Business description

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

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Solid State is a research client of Edison Investment Research Limited

Solid State has finalised a settlement agreement with the Ministry of Justice (MoJ) for the terminated contract to supply sub-systems for offender tagging. We treat this payment, the value of which is not disclosed, as an exceptional item. Our adjusted PBT and EPS estimates, which already reflect the absence of continued revenues from the contract, remain unchanged. Management estimates that the settlement will boost FY16 reported PBT to £4.1m.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/14

32.1

2.4

28.4

8.5

11.8

2.5

03/15

36.6

3.2

36.3

12.0

9.2

3.6

03/16e

44.0

3.2

34.7

12.0

9.7

3.6

03/17e

39.6

3.4

36.1

12.0

9.3

3.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, share-based payments

The premature termination of the contract removes a single large potential source of profit growth. However, management’s creation of a diversified platform with focus on value-added capability to drive margin gives multiple smaller sources of profit growth. This includes the development of new products such as next-generation ticketing machines and fully equipped cabinets of servers for aerospace applications. It also includes the addition of new franchises, most recently with GSI, Kemet and GigaDevices. We expect that management will use the cash given in settlement to fund its ongoing acquisition programme, presenting upside to our estimates from FY17 onwards. Solid State has retained the IP developed for the MoJ contract and key personnel with the intention of offering systems to police forces and border security agencies. Management expects that material sales of such systems are likely to begin in 12 to 18 months.

Stripping out £5m revenues for the initial stage of the MoJ project received in FY16 at very low margin, we model FY17 underlying revenues at similar levels to FY16. Overall, we expect new product introductions to offset continued general market weakness. This view is supported by the order book, which totalled £15.3m at end FY16 compared with £14.4m at end FY14. Noting management’s programme to realise c £0.5m annualised cost savings, which is complete, we model a 4% year-on-year rise in adjusted PBT (excluding the one-off compensation payment).

Disclaimer

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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