Over 50 Years at the Heart of Critical Communications Standards
“Fifty years ago, critical communications relied on dependable voice analogue radio networks.
Today, the sector is defined by global standards, sophisticated semiconductor technologies and increasingly complex hybrid communications architectures supporting emergency services, transport networks, utilities, defence organisations and critical national infrastructure worldwide.
Whether it is a firefighter inside a burning building, a railway controller responding to an incident, a utility operator restoring power after a major outage, a maritime crew operating in harsh conditions or first responders coordinating a large-scale emergency, reliable communications are fundamental to operational safety.
In these environments, a loss of communication is far more than an inconvenience; it can compromise decision-making, delay emergency response and ultimately place lives at risk.” By Giuseppe Torres, Product Manager, CML Microsystems
Investors are increasingly paying attention to the £50m-capitalised CML Microsystems (LON:CML) which is engaged in developing mixed-signal, RF, and microwave semiconductors for global communications markets.
Estimated to have around £10m of net cash, with over £51m net assets, the loss-making CML is cash-generative, has no debt and is dividend-paying.
The group’s first-half year ends on Wednesday of this week, with its Interims Results expected to be published on Tuesday, 17th November.
The Business
Founded in 1968 and based at Maldon near Chelmsford, the £51m-capitalised CML Microsystems has grown steadily with an increasing focus on industrial applications within its end-markets.
With eight offices and 161 employees worldwide, today it is a world leader in the design, development and supply of mixed signal radio frequency and microwave semiconductors for the global communications markets.
The group utilises a combination of outsourced manufacturing and in-house testing with trading operations in the UK, Asia and USA.
CML targets sub-segments within the communication markets with strong growth profiles and high barriers to entry.
It offers a range of products, including millimetre wave (mmWave) MMICs, RF transceivers, baseband processors, data controllers and interface devices, which are used in various applications such as critical communications, satellite and network infrastructure.
It has secured a diverse, blue-chip customer base, including some of the world’s leading commercial and industrial product manufacturers.
Growth in its end-markets is being driven by factors such as the appetite for data to be transmitted faster and more securely, the upgrading of telecoms infrastructure around the world and the growing prevalence of private commercial wireless networks for voice and/or data communications linked to the industrial internet of things (IIoT).
It offers services across markets, such as wireless digital transformation, network infrastructure, hybrid PMR-LTE systems, public safety, satellite, Internet of things (IoT), broadcast, and aerospace and defence.
The company has investments in fifth-generation (5G) infrastructure, including small cells and beamforming technologies.
Market Opportunity
“Connected everything” is propelling exponential increases in data consumption – driving growth across wireless communications markets globally.
CML customers embed its innovative solutions within their products to enable reliable transmission, and reception of voice, data and control information in the connected world.
It is a supplier of high-performance RF products and mixed-signal baseband/modem processors across multiple wireless voice and data communication markets.
Wireless & Satellite: Public service, satellite, maritime & critical, voice and data wireless communications depend on CML;
Network Infrastructure: CML SHF RF devices are building the 5G and satellite infrastructure for the next decade;
Internet of Things: CML devices are fuelling the IoT and M2M revolution;
Aerospace & Defence: Its products enable communication in mission critical applications worldwide.
AGM Trading Update
On Tuesday, 11th August, Nigel Clark, Non-Executive Chairman, issued the following AGM Trading Update.
“The business entered FY27 with encouraging momentum following a positive final quarter in the prior financial year with both revenue growth and an improving order intake.
This progress has continued into the current financial year with firmer demand across all key market verticals.
This uplift has supported trading, with the opening months delivering revenue in line with, and order intake ahead of, our expectations.
The Board remains confident in its growth strategy and a return to operational profitability now looks likely to be achieved earlier in the current financial year than previously expected.”
The Equity
There are some 17.23m shares in issue.
The larger holders include Premier Fund Managers (9.54%), Christopher Gurry (7.76%), Nathan Zommer (7.53%), Herald Investment Management (3.45%), GPIM Ltd. (4.86%), and Liontrust Investment Partners (3.27%).
Broker’s View
Analyst Alasdair Young, at Shore Capital Markets, reflects that in the longer term, he sees scope for continued margin expansion, with incremental gross profit set to drop through to the bottom line at a very high conversion rate.
For the current year to end-March 2027, he sees revenues of £23.9m (£20.4m), an adjusted pre-tax loss of £0.1m (loss of £1.8m), with negative earnings improving to 0.2p (3.4p loss), while the group identifies its own prospects by continuing to pay out a dividend of 11.0p per share.
“With multiple growth levers in place and a strong balance sheet, we believe the shares offer compelling upside as operational recovery becomes more evident.
We continue to view the current valuation as reflecting a trough multiple on trough earnings.”
In My View
Turning from losses into profits takes a great deal of Management time and commitment – at CML its ‘corner is being turned’ which should become clear when the group announces its Interims in just over seven weeks.
Three years ago, the group made £3.1m profit on £23m sales, generating nearly 20p a share in earnings – it could soon be doing that again.
The Management is confident that is the case, as can be seen by its maintain of its totally uncovered 11p a share dividend.
For patient risk-tolerant investors CML Microsystems’ shares at 302p offer a speculative upside.