Shares for the future: a solid top five company
This business has scored highly in recent times, and analyst Richard Beddard continues to back the stock as all divisions perform better than they did in 2025.
28th August 2026 13:37
by Richard Beddard from interactive investor
The year to March 2026 will be remembered for the death of Solid State (LSE:SOLI)’s longtime chief executive Gary Marsh. John Macmichael was appointed as interim chief executive in November 2025. He became permanent immediately before the year end.
Marsh had been involved in the business for nearly 40 years, but its experienced board achieved an apparently seamless transition. Macmichael had been managing director of Solid State’s Components business since 2010.
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2026 rebound
All three of Solid State’s divisions performed better in 2026 than they did in 2025. Group revenue increased 23% and adjusted profit increased 46%.
The largest and most profitable division, Systems, made the biggest contribution to growth in absolute terms. The smallest and newest division, Power, achieved a turnaround, increasing adjusted operating profit margins from 1% to 5%. Components grew revenue modestly and achieved the same 4% operating profit margin as it did the previous year.
The Systems division assembles and customises rugged computers, imaging products and communications solutions. In 2026, it benefited from a high level of orders for communications systems (aka smart radios) made by US firm Persistent Systems.
The radios are customised, supplied to the military, and supported in the UK by Steatite, a Solid State subsidiary, under a NATO procurement framework. One of the early users was the Royal Marines.
The new Power Division was formerly part of Systems. Trading as Custom Power, Systems designs and assembles battery packs and battery management systems.
Solid State acquired predominantly US-based Custom Power in 2022 and merged it with a pre-existing battery business. The acquisition got off to a bad start, requiring it to exit unprofitable contracts and changes to its leadership.
Higher demand for drones, autonomous underwater vehicles, robotics and unmanned ground vehicles helped Power to a better performance this year.
Components, which trades as SOLSTA, distributes electronic components. It adds value, for example by sourcing and stocking parts for products with long life cycles. Typically it earns the lowest profit margins.
The division sells its own brand of high voltage electrical switches, which are finding a home in data centres.
Solid State’s rebound in 2026 means revenue, adjusted after-tax operating profit and operating capital are all just over 2.5 times the level they were in 2019, a year I have picked because it was a typical pre-pandemic year. After-tax return on capital in 2026 was 15%, the same as 2019.
It’s hard not to focus on the numbers in between those years, when return on capital peaked at 36% in 2023 and 2024 and adjusted profit was almost 75% higher (in 2024), but I think those years, and the subsequent hangover year, 2025, were exceptional.
Demand in 2022 and 2023 was strong due to the supply shortages following the pandemic and the outbreak of war in Ukraine. While destocking in some parts of the business had started in 2023, it was not evident in the group’s results because of a windfall from the large NATO communications order. The company came back to earth in 2025.
Solid State says it has entered the year to March 2027 in a stronger position than the last two. Yet the aggregate of forecasts from two brokers anticipates only a low single-digit increase in revenue.
That will include £8 million more NATO revenue, the first order from Project CAIN. Project CAIN is upgrading the British Army’s communication systems.
The company’s twin targets of £250 million revenue and “sustainable” earnings per share of 20p by 2030, implies a 13% compound annual growth rate (CAGR) in revenue over the next four years, similar to the historical average. Profitability will have to improve to achieve the profit target.
This may come about as defence spending increases, customers in Europe and the US seek suppliers closer to home, Solid State focuses on more complex and more profitable products, and greater volumes go through new manufacturing facilities and some still being extended.
Defence is a double-edged sword
Solid State’s reliance on defence projects, which can be episodic, is a complicating factor.
Defence is Solid State’s biggest single market and the one it expects to grow most, but the revenue from NATO contracts is so lumpy Solid State discloses it separately (light blue columns in the chart below).
Source: Solid State annual report 2026.
NATO procurement contributed 20% of total revenue in 2024 and 17% in 2026, but it contributed nothing in the intermediate year.
The variability in revenue and profit makes life difficult for Solid State, because it must fund facilities that are sometimes underused. It is also difficult for investors whose calculations of growth and profitability are sensitive to the dates they choose to include.
We cannot be confident we know what will happen next, and I expect the same is sometimes true for management.
To reduce revenue volatility, Solid State has in the past made the medical market a priority. Medical equipment manufacturers require similar secure technologies and facilities to the defence industry, but demand is more stable.
But medical revenues have declined from £17 million in 2024 to £13 million in 2026, and Solid State’s commitment appears to have been replaced by a broader goal to maintain a diversified market presence.
The new chief executive’s big idea is organic growth. He wants to get more out of the businesses Solid State has acquired over the years.
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They have mostly operated independently, but Solid State believes they can “deliver more together”. It has created a small team to wrangle businesses focused on different technologies and markets to work together on more complex products and longer-term contracts for big customers. The strategy also requires each division to design higher margin own-brand standard products.
As a result, the Solid State of the future, he believes, will be more profitable and revenue will be more predictable.
For now, acquisitions will take a backseat. The company only anticipates “bolt-ons” for its subsidiaries. Specifically, the Systems division is seeking to expand its existing RF (radio frequency) antennae manufacturing capacity.
Limited acquisitive ambition is a good thing given Custom Power’s troubled start, and the fact that Solid State is barely generating adequate after-tax returns on capital if we include the cost price of all its acquisitions in the calculation (it earns 8% Return on Total Invested Capital).
Larger “strategic” acquisitions remain part of Solid State’s longer-term “toolkit”. By then, hopefully it will have more convincingly demonstrated the value of past purchases.
Scoring SOLI: evolution not revolution
Synergies sometimes look achievable on paper but prove unachievable in practice. Solid State has operated most of its subsidiaries for many years, though, so it ought to have good insight into how they can work together.
I believe Gary Marsh would have approved of the collaborative approach; indeed the company was already on this track.
Solid State’s tribute says he treated people as he wished to be treated. One datapoint in the year of his death suggests he left behind a company people want to work for. Employee retention (excluding retirement and redundancies) was 90%.
| Solid State | SOLI | Manufactures electronic systems and distributes components | 28/08/2026 | 7.9/10 |
| How capably has Solid State made money? | 2.0 | |||
| Under consistent management, Solid State has grown revenue at 10% CAGR net of the growth in the share count and profit at 8% CAGR (net) over the last 12 years. Return on Capital has consistently been above 10% and cash conversion respectable. Abnormal profitability between 2022 and 2024 may not be repeated. | ||||
| How big are the risks? | 2.0 | |||
| Lumpy defence contracts and cyclical markets can affect Solid State’s performance dramatically. ROTIC has been weak in 2025 and 2026, and the company may have overpaid for some acquisitions. For now, it is focusing on organic growth augmented by small bolt-on acquisitions. | ||||
| How fair and coherent is its strategy? | 3.0 | |||
| Solid State is coordinating its businesses, which have capabilities in many technologies and markets, so they can work on more complex systems under longer-term contracts. It is also developing its own brands. By adding more value, it may increase profitability. It has an experienced board and employee retention is high. | ||||
| How low (high) is the share price compared to normalised profit? | 0.9 | |||
| Low. A share price of 189p values the enterprise at £119 million, about 12 times normalised profit. | ||||
| NB: Bold text indicates factors that reduce the score. Bold and italicised text doubly so. The maximum score is 3 for each criterion except price, which has a maximum of 1 (explained here) | ||||
The price score is calculated using average return on capital over the last 12 years. I think it is unlikely the company will achieve the returns on capital it did between 2022 and 2024 again. This “abnormal profitability” may be inflating the price score unduly so, to offset the impact, I have penalised it.
30 Shares for the future
Here is the ranked list of Decision Engine shares. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.
Generally, I consider shares that score more than 5 out of 10 to be worthy of long-term investment in sizes determined by the ideal holding size (ihs%).
Cohort (LSE:CHRT), Games Workshop Group (LSE:GAW), Latham (James) (LSE:LTHM) and Jet2 Ordinary Shares (LSE:JET2) have published annual reports and are due to be re-scored.
| company | description | score | qual | price | ih% | |
| 1 | FW Thorpe | Makes lighting systems for commercial, industrial and public settings | 9.9 | 9.0 | 0.9 | 9.9% |
| 2 | Hollywood Bowl | Operates tenpin bowling centres | 8.4 | 8.0 | 0.4 | 6.9% |
| 3 | James Latham | Distributes imported panel products, timber, and laminates | 8.0 | 7.0 | 1.0 | 6.0% |
| 4 | Jet2 | Flies people to holiday locations, often on package tours | 7.9 | 7.0 | 0.9 | 5.9% |
| 5 | Solid State | Manufactures electronic systems and distributes components | 7.9 | 7.0 | 0.9 | 5.8% |
| 6 | Renew | Maintains and improves road, rail, water, and energy infrastructure | 7.8 | 7.5 | 0.3 | 5.6% |
| 7 | Howden Joinery | Supplies kitchens and joinery to builders and online to DIYers | 7.7 | 7.0 | 0.7 | 5.5% |
| 8 | Cake Box | Cake shop (Cake Box) and sweet shop (Ambala) franchisor | 7.7 | 7.0 | 0.7 | 5.4% |
| 9 | Porvair | Manufactures filters and laboratory equipment | 7.6 | 8.0 | -0.4 | 5.2% |
| 10 | Judges Scientific | Acquires and grows businesses that manufacture scientific instruments | 7.5 | 6.5 | 1.0 | 5.0% |
| 11 | Anpario | Manufactures natural animal feed additives | 7.5 | 7.0 | 0.5 | 5.0% |
| 12 | Bunzl | Distributes essential everyday items consumed by businesses | 7.2 | 7.0 | 0.2 | 4.3% |
| 13 | Keystone Law | Operates a network of self-employed lawyers | 7.2 | 7.0 | 0.2 | 4.3% |
| 14 | Oxford Instruments | Makes imaging and semiconductor manufacturing systems | 7.1 | 7.0 | 0.1 | 4.3% |
| 15 | Quartix | Supplies vehicle tracking systems to small fleets | 7.1 | 7.0 | 0.1 | 4.2% |
| 16 | Churchill China | Manufactures tableware for restaurants etc. | 7.0 | 6.0 | 1.0 | 4.0% |
| 17 | Auto Trader | Online marketplace for motor vehicles | 6.9 | 6.0 | 0.9 | 3.8% |
| 18 | YouGov | Surveys public opinion and conducts market research online | 6.8 | 6.0 | 0.8 | 3.7% |
| 19 | Volution | Manufacturer of ventilation products | 6.8 | 8.5 | -1.7 | 3.7% |
| 20 | Games Workshop | Designs, makes and distributes Warhammer. Licences IP | 6.8 | 8.5 | -1.7 | 3.6% |
| 21 | Bloomsbury Publishing | Publishes books and educational resources | 6.8 | 7.5 | -0.7 | 3.5% |
| 22 | Cohort | Manufactures/supplies defence tech, training, consultancy | 6.7 | 8.0 | -1.3 | 3.3% |
| 23 | Macfarlane | Distributes and manufactures protective packaging | 6.5 | 5.5 | 1.0 | 3.0% |
| 24 | Goodwin | Casts and machines steel and processes minerals for niche markets | 6.2 | 7.5 | -1.3 | 2.5% |
| 25 | Advanced Medical Solutions | Manufactures surgical adhesives, sutures and dressings | 6.2 | 6.5 | -0.3 | 2.5% |
| 26 | Focusrite | Designs recording equipment, synthesisers and sound systems | 6.0 | 5.0 | 1.0 | 2.5% |
| 27 | Softcat | Sells software and hardware to businesses and public sector | 5.9 | 7.0 | -1.1 | 2.5% |
| 28 | Tristel | Manufactures hospital disinfectant | 5.8 | 8.0 | -2.2 | 2.5% |
| 29 | 4Imprint | Customises and distributes promotional goods | 5.5 | 8.0 | -2.5 | 2.5% |
| 30 | Renishaw | Makes tools and systems for manufacturers | 4.6 | 6.5 | -1.9 | 2.5% |
Click on a share’s score to see a breakdown (scores may have changed due to movements in share price). Key: qual is the share’s score out of 9 for the three quality factors (capabilities, risks, and strategy), price is the price score from -3 to +1, and ih% is the suggested ideal holding size as a percentage of the total value of a diversified portfolio.
Richard Beddard is a freelance contributor and not a direct employee of interactive investor.
Richard owns Solid State and many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.
For more on the Decision Engine and Share Sleuth, please see Richard’s explainer.
Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard
AIM stocks tend to be volatile high-risk/high-reward investments and are intended for people with an appropriate degree of equity trading knowledge and experience.
Disclosure
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