Filtronic — Upgrading on follow-on space order

Filtronic (AIM: FTC)

Last close As at 02/12/2024

GBP0.72

−1.00 (−1.37%)

Market capitalisation

GBP158m

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Research: TMT

Filtronic — Upgrading on follow-on space order

Filtronic continues to benefit from the agreement signed with SpaceX in April – it has received a follow-on production order for E-band solid state power amplifier (SSPA) modules with shipment expected in CY25. As management anticipates this pushing FY25 revenue ahead of market expectations, we have upgraded our FY25 and FY26 revenue and EPS forecasts to reflect the new contract and the related vesting of warrants. While the maximum level of warrants has been earned from E-band product orders, we believe there is still potential for more orders at this frequency, in addition to the opportunity to supply products at different frequency bands.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Filtronic

Upgrading on follow-on space order

Contract win

Tech hardware and equipment

3 September 2024

Price

79p

Market cap

£173m

Net cash (£m) at end FY24
(including PPE lease liabilities)

5.2

Shares in issue

218.6m

Free float

66.1%

Code

FTC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

21.4

28.2

381.8

Rel (local)

18.9

26.8

329.3

52-week high/low

79.5p

14.5p

Business description

Filtronic is a designer and manufacturer of advanced radio frequency communications products, supplying a number of market sectors including mobile telecommunications infrastructure, space, public safety and aerospace & defence.

Next events

AGM

31 October

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Filtronic is a research client of Edison Investment Research Limited

Filtronic continues to benefit from the agreement signed with SpaceX in April – it has received a follow-on production order for E-band solid state power amplifier (SSPA) modules with shipment expected in CY25. As management anticipates this pushing FY25 revenue ahead of market expectations, we have upgraded our FY25 and FY26 revenue and EPS forecasts to reflect the new contract and the related vesting of warrants. While the maximum level of warrants has been earned from E-band product orders, we believe there is still potential for more orders at this frequency, in addition to the opportunity to supply products at different frequency bands.

Year end

Revenue (£m)

EBITDA* (£m)

PBT*
(£m)

Diluted
EPS* (p)

DPS
(p)

P/E
(x)

05/23

16.3

1.3

0.1

0.06

0

N/A

05/24

25.4

4.9

3.4

1.43

0

55.2

05/25e

39.9

9.3

7.1

3.02

0

26.2

05/26e

41.1

9.5

6.9

2.93

0

26.9

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

Follow-on order from SpaceX

On 30 August, Filtronic announced it had received an $8.4m/£6.4m follow-on order from SpaceX for E-band SSPA modules for use in ground stations for the SpaceX Starlink constellation. The company expects to fulfil the order in CY25 and therefore expects to trade ahead of market expectations in FY25. As a result of the order, a further 2,171,211 warrants have vested, resulting in a total of 10,856,055 vested warrants, equivalent to 5% of Filtronic’s share capital at the time of signing the agreement. This is the maximum number of warrants that can be earned from this part of the agreement. Any further warrant vesting depends on receiving orders for technology developed at other frequency bands.

Upgrading forecasts

We have revised our forecasts to reflect the majority of the order shipping in FY25 with the remainder in FY26. We have also reflected the new vested warrants in our diluted EPS forecasts. We have upgraded our revenue forecasts by 13.4% in FY25 and 2.9% in FY26, with diluted EPS upgrades of 23.0% and 5.5%, respectively.

Valuation: Growing confidence

The stock has more than doubled since the SpaceX strategic agreement was signed in April, after a material FY25 estimate upgrade. The stock now trades on a P/E of 26.2x FY25e and 26.9x FY26e. Using a 10-year reverse discounted cash flow with a weighted average cost of capital of 8%, the current share price is arrived at using revenue growth of 13.5% per year for FY27–34e and EBITDA margins growing from an estimated 23.0% in FY26 to 25.2% over the period. In our view, the relationship with SpaceX, the potential to widen the customer base in the space market and growing penetration of the aerospace and defence market all provide avenues for sustainable growth.

Changes to forecasts

Exhibit 1: Changes to forecasts

£m

FY25e old

FY25e new

Change

y-o-y

FY26e old

FY26e new

Change

y-o-y

Revenues

35.2

39.9

13.4%

57.0%

40.0

41.1

2.9%

3.0%

EBITDA

8.0

9.3

17.4%

90.9%

9.0

9.5

4.7%

1.3%

EBITDA margin

22.6%

23.4%

0.8pp

4.1pp

22.6%

23.0%

0.4pp

-0.4pp

Reported operating profit

6.1

7.4

22.8%

105.9%

6.8

7.3

6.2%

-2.4%

Reported operating margin

17.2%

18.6%

1.4pp

4.4pp

17.1%

17.6%

0.6pp

-1.0pp

Reported PBT

5.7

7.1

24.2%

111.2%

6.5

6.9

6.5%

-2.5%

Normalised net income

5.7

7.1

24.2%

122.7%

6.5

6.9

6.5%

-2.5%

Reported net income

5.7

7.1

24.2%

126.0%

6.5

6.9

6.5%

-2.5%

Normalised basic EPS (p)

2.63

3.26

24.1%

121.1%

2.97

3.17

6.4%

-2.8%

Normalised diluted EPS (p)

2.45

3.02

23.0%

111.0%

2.78

2.93

5.5%

-2.8%

Reported basic EPS (p)

2.63

3.26

24.1%

124.5%

2.97

3.17

6.4%

-2.8%

Net debt/(cash)

(6.1)

(6.7)

9.7%

27.5%

(11.1)

(11.9)

7.5%

79.0%

Source: Edison Investment Research

Exhibit 2: Financial summary

Year end May

£m

2021

2022

2023

2024

2025e

2026e

INCOME STATEMENT

Revenue

 

 

15.6

17.1

16.3

25.4

39.9

41.1

EBITDA

 

 

1.8

2.8

1.3

4.9

9.3

9.5

Operating profit (before amort. and excepts.)

 

0.6

1.6

0.2

3.7

7.4

7.3

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.1

0.4

0.0

0.0

0.0

0.0

Reported operating profit

0.6

2.0

0.2

3.6

7.4

7.3

Net Interest

(0.4)

(0.1)

(0.2)

(0.2)

(0.3)

(0.3)

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

0.1

1.5

0.1

3.4

7.1

6.9

Profit Before Tax (reported)

 

 

0.2

1.9

0.1

3.4

7.1

6.9

Reported tax

(0.2)

(0.4)

0.4

(0.2)

0.0

0.0

Profit After Tax (norm)

0.3

1.2

0.1

3.2

7.1

6.9

Profit After Tax (reported)

0.1

1.5

0.5

3.1

7.1

6.9

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

0.3

1.2

0.1

3.2

7.1

6.9

Net income (reported)

0.1

1.5

0.5

3.1

7.1

6.9

Average Number of Shares Outstanding (m)

213

215

215

216

218

219

EPS - normalised (p)

 

 

0.14

0.54

0.07

1.47

3.26

3.17

EPS - normalised fully diluted (p)

 

 

0.14

0.53

0.06

1.43

3.02

2.93

EPS - basic reported (p)

 

 

0.03

0.68

0.22

1.45

3.26

3.17

Dividend (p)

0.00

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

 

 

6.2

5.4

7.4

8.2

13.8

14.7

Intangible Assets

1.7

1.5

1.8

2.3

2.9

3.6

Tangible Assets

3.3

3.0

4.3

4.9

9.9

10.1

Investments & other

1.2

0.9

1.3

1.0

1.0

1.0

Current Assets

 

 

8.4

11.1

10.7

17.0

23.8

29.7

Stocks

2.2

2.6

2.8

3.3

5.1

5.3

Debtors

3.3

4.5

5.3

6.6

8.8

9.5

Cash & cash equivalents

2.9

4.0

2.6

7.2

9.9

14.9

Other

0.0

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(3.6)

(4.0)

(4.8)

(8.2)

(10.6)

(10.7)

Creditors

(2.4)

(3.0)

(3.7)

(5.4)

(8.8)

(8.9)

Short term borrowings including lease liabilities

(0.6)

(0.5)

(0.6)

(0.9)

(0.9)

(0.9)

Other

(0.6)

(0.5)

(0.5)

(1.9)

(0.9)

(0.9)

Long Term Liabilities

 

 

(1.7)

(1.4)

(1.7)

(2.3)

(4.7)

(4.4)

Long term borrowings

(1.6)

(1.3)

(1.7)

(2.1)

(4.5)

(4.3)

Other long term liabilities

(0.1)

(0.1)

(0.0)

(0.1)

(0.1)

(0.1)

Net Assets

 

 

9.4

11.0

11.5

14.8

22.3

29.2

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

9.4

11.0

11.5

14.8

22.3

29.2

CASH FLOW

Op Cash Flow before WC and tax

1.8

2.8

1.3

4.9

9.3

9.5

Working capital

1.1

(0.8)

(0.4)

1.5

(1.6)

(0.8)

Exceptional & other

(1.0)

0.3

0.0

0.0

0.0

0.0

Tax

0.5

0.0

0.0

(0.0)

0.0

0.0

Operating Cash Flow

 

 

2.5

2.3

0.9

6.3

7.7

8.7

Capex (including capitalised R&D)

(0.4)

(0.3)

(1.5)

(1.6)

(4.2)

(2.3)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

0.0

Net interest

(0.2)

(0.2)

(0.2)

(0.2)

(0.3)

(0.3)

Equity financing

0.0

0.0

0.0

0.1

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

1.9

1.9

(0.8)

4.6

3.2

6.0

Opening net debt/(cash)

 

 

0.7

(0.8)

(2.2)

(0.3)

(4.2)

(4.5)

FX

0.0

0.0

0.0

0.0

0.4

0.0

Other non-cash movements

(0.4)

(0.5)

(1.1)

(0.7)

(3.3)

(0.8)

Closing net debt/(cash) including lease liabilities

 

(0.8)

(2.2)

(0.3)

(4.2)

(4.5)

(9.7)

Property lease liabilities

1.2

1.0

1.295

1.0

2.2

2.2

Closing net debt/(cash)

 

 

(2.0)

(3.1)

(1.6)

(5.2)

(6.7)

(11.9)

Source: Filtronic, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Filtronic and prepared and issued by Edison, in consideration of a fee payable by Filtronic. Edison Investment Research standard fees are £60,000 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 research department of Edison 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 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Filtronic and prepared and issued by Edison, in consideration of a fee payable by Filtronic. Edison Investment Research standard fees are £60,000 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 research department of Edison 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 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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