Filtronic (60p and 3% of JIC portfolio); I have this morning bought a holding in Filtronic, the designer and manufacturer of broadband microwave and base station filter products for wireless telecommunications systems.
Another theme I have been following in the portfolio, through my holdings in Laird and Anite, is the growth in the adoption of smart phones and in internet usage through mobile devices. We are in the early days of the rollout of 4G services throughout the world, vastly increasing the speed of web access and improving the user experience. This is requiring huge cap-ex by the network providers which Filtronic is starting to benefit from.
In its latest trading statement published on the 18th April, just ahead of its 31st May year end it said that "Wireless continues to make good progress with the LTE/4G mitigation filters, (that prevent 4G services interfering with domestic television receivers in Europe), driving the fourth quarter performance. Sales commenced in March and deliveries have progressed in line with expectations. The exact timing and mix of these filter sales to the year-end remains difficult to forecast but the Board anticipates that current market forecasts for Wireless turnover and profit will be exceeded." It went on to say that "in light of the trading outlined above the Board expects that revenues and profits for the Group as a whole will exceed market expectations, with revenues expected to be in the region of £38.5m."
Conclusion: The share price reacted positively to the news but has since drifted back to the 60p level, which is some 30% below the highs achieved in early March. The balance sheet is fine with cash of £3.2m at the interim stage, although there is likely to be an increase in working capital requirements with the ramp up in 4G filter production. I think that this represents a good entry point and that after a difficult few years we should see a period of strong growth. On consensus forecasts the shares are valued at 15.5x May 2013 earnings falling to 11.8x May 2014 for 32% growth. Earnings forecasts have been upgraded during the last six months and I suspect there will be more to come. Last year the company issued a trading statement in early June. According to ShareScope it is due to issue an update next Monday and full year results before the end of July. (See transactions)
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