Is Filtronic on the right wavelength?
16th August 2018 15:01
by Graeme Evans from interactive investor
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5G mobile technology is an area of great promise for Filtronic, but it still needs to sort out its lumpy revenues performance. Graeme Evans reports.
The last time we covered Filtronic in January the shares were languishing at 9p amid continued disappointment about a lumpy revenues performance.
As anyone who has followed Filtronic closely, including those who can recall its tech boom days of £23.50 a share, will know there have been plenty of false dawns for this particular recovery story over the years.
But since our last update, the AIM-listed wireless communications company has been quietly going about its business. Shares are up to 13p and Filtronic chairman Reg Gott is sounding more upbeat about strategic progress shifting the company towards higher margin products and applications.
One of the big hopes comes from positioning Filtronic for 5G, the next generation of mobile technology that will mean much greater data speeds, along with capacity for a massive increase in devices compared to 4G networks.
Earlier this month, Filtronic announced initial production orders worth $2 million from a European OEM for its Massive MIMO antenna product, which enables the use of beamforming techniques essential to 5G networks.
Chief executive Rob Smith said it demonstrated the company's "credibility and capability" as a supplier of complex antennas into the telecoms market.
Other recent successes include a major contract win worth £4.8 million to supply a major European defence customer over three years.
This is an example of how Filtronic is looking beyond its traditional mobile telecoms infrastructure market, with revenues and profits from defence and aerospace and public safety networks higher in the year to May 31.
However it admitted in annual results today that sales remain highly concentrated and exposed to fluctuations in demand due to the types and size of projects that Filtronic currently serves.
It is reorganising its sales force into two teams, with one focused on the mobile network market and the other on the critical communications market. The Filtronic Wireless and Filtronic Broadband businesses are also being combined so the company can better utilise the respective engineering, operations and sales resources.
Even though full-year revenues fell by 32% to £24 million, Panmure Gordon noted some "qualitative improvement" in the headline numbers amid the drive towards longer-cycle markets. Underlying earnings held firm at £2.5 million.
Panmure analyst Sanjay Jha has a target price of 18.9p, which is where the recommendation has been since a 35% downgrade by the broker at the start of this year.
Jha remains positive on the company, particularly as the balance sheet is strong after a £1 million rise in net cash to £3.6 million at the end of May. The company does not pay a dividend.
He added:
"Given the ongoing shifts from legacy to next-generation products, it is too early to make changes to our revenue forecasts. The management remains focused on profitable growth."
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