This report was released today from Investor Chronicles.
- First-half operating profit surges 230 per cent to £1.75mn on 22 per cent higher revenue of £10mn
- Fourth consecutive six-month period of revenue growth
- Full-year adjusted EPS set to double to 22.2p, rising to 27.4p (2023/24) following 43 and 47 per cent earnings upgrades
- Net cash of £22.7mn (143p a share)
Maldon-based semiconductor chip maker and designer CML Microsystems (CML:430p) has delivered eye-catching first half results that prompted house broker Shore Capital to push through massive earnings upgrades.
CML is a play on the high-growth industrial communications market, providing integrated circuits to distributors and system integrators. In the six-month trading period, recovery in existing markets (public safety, maritime and mission critical wireless voice and data communications) enabled the operational gearing of the business to really kick in, hence why a high proportion of the cash profit uplift for the full year (upgraded from £4.4mn to £5.8mn) passes through to pre-tax profit (forecast raised 40 per cent to £3.5mn on revenue of £20.5mn). Although a strong US dollar benefited first-half revenue, around 80 per cent of sales are transacted in the currency, it wasn’t a major factor behind the 230 per cent growth in operating profit as a high proportion of input costs are non-sterling, too.
The organic growth story has some way to run as CML is set to reap the benefits from investment in new products that are being launched in markets many times larger than CML’s established markets within the sub 1GHz radio frequency arena. The need for data to be transmitted faster and more securely, the upgrading of telecoms infrastructure around the world, and an increasing prevalence of private commercial networks for voice and data communications are key secular demand drivers. CML is proving adept at taking market share from rivals, too.
True, Shore Capital’s upgraded full-year pre-tax profit estimate of £3.5mn factors in £0.5mn higher costs in the second half to 31 March 2023, so there are inflationary pressures. However, in a positive sales cycle they can be absorbed without stalling profit growth. Indeed, Shore Capital predict that if CML delivers 12 per cent higher revenue of £23.1mn in 2023/24, then cash profit will rise by £1m to £6.8mn and drive 25 per cent growth in pre-tax profit to £4.4mn. On this basis, the shares are priced on modest forward cash-adjusted price/earnings (PE) ratios of 12.9 (2022/23) and 10.3…
