Filtronic (LON: FTC) narrowly beat June’s upgraded full year results for the year to May 2022. The RF components and products developer and supplier has a strong balance sheet, and it is investing in its sales team and the development of space products.
A new facility has been set up in Manchester to house a dedicated mmWave space products development team. Last year, R&D spending was maintained at £1.7m and there are plans to spend 12% or more of revenues in the future.
In the year to May 2022, revenues improved from £15.6m to £17.1m, while pre-tax profit jumped from £200,000 to £1.5m. The mix of product sales boosted margins. Higher margin defence and critical communications sales grew, while lower margin Xhaul telecoms revenues fell, although they were stronger in the second half.
Net cash was £4m. Inventories increased from £2.19m to £2.6m so that difficult to obtain electronic components were available when needed.
Expectations
The easing of Covid restrictions will mean more travel costs this year and there will also be more sales and development personnel. That will hold back short-term profitability, making it difficult to maintain the current level of profit.
There is likely to be a greater proportion of Xhaul sales in this year’s forecast revenues of £19m. That means that group margins will decline. Pre-tax profit is expected to be £800,000 and net cash could rise to £4.4m.
Filtronic recently won additional contracts, including a £400,000 aerospace and defence contract for the design and manufacture of microwave filters. This will be delivered this year and there could be follow-on business.
It should be remembered that there were upgrades during last year, so there could be scope for upgrades later in this financial year. The latest investment should start to pay off over the next couple of years. At 15.25p, the shares are trading on 50 times prospective 2022-23 earnings. That multiple could reduce significantly in the coming years and the technology developed could be highly valuable.
