What's Next For 10-bagger Filtronic?

18th Feb by Roland Head

19 comments 1982 reads

In recent weeks, I’ve taken a neutral view on high flyer Filtronic (LON:FTC) in the daily report, despite an impressive sequence of regular contract wins and the stock’s evident strong momentum.

My position has prompted some lively debate in the comments. Thank you to all who have contributed. It’s fair to say there’s a mix of views among subscribers. I’ve certainly found some of the comments have added to my understanding of this British tech firm.

To fill some of the gaps in my knowledge and test whether I’m being too cautious, I thought it might be a good idea to take a closer look at this British engineering success story in this week’s Stock Pitch.

Summary

Pros:

Strong growth, operating leverage driving high profit margins
Seemingly differentiated technology, some prestigious customers
Experienced management, solid balance sheet

Cons:

Recent progress is arguably already priced in, inconsistent financial track record
48% of revenue came from SpaceX last year
House broker is forecasting a 40% earnings slump in FY26, reflecting the completion of the first phase of the SpaceX agreement

Profile

About the stock

Filtronic “designs and manufactures RF-to-mmWave components and subsystems for mission-critical communication networks.” The company makes products such as power amplifiers and transceivers used in communication links.

It’s listed in the Technology sector, within the Communications & Networking industry group.

The shares are listed on the London AIM market with a market cap of £235m and a recent share price of 106p.

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Filtronic has been a 10-bagger over the last three years, during which its operating profits have risen fivefold.

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This firm is clearly operating in a sweet spot right now, due in large part to a string of big orders from its largest client, Elon Musk’s satellite internet operator SpaceX.

This is certainly a remarkable performance. And despite my caution, I agree with bulls that it’s possible Filtronic will deliver much more in the future.

The StockRanks reflect the company’s High Flyer status, with strong quality and momentum scores but a low ValueRank:

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About the opportunity

From any perspective, I think Filtronic looks like an…

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iwright7

18th Feb

Rowland An excellent write up.

I am a Filtronic (LON:FTC) holder so am undoubtably biased, but I do believe it has more positives than negatives. In addition it is a classic Momentum stock with several "Aheads" and "Jumps" and many new 52Wk Highs. So I will continue to hold until the Momentum mood music changes.

Another holder is Richard Staveley of Rockwood whose judgement I value. Richard is a lot closer to the company than most of us and in a recent Vox interview Richard was bullish on the stock. To capture the flavor of this I fed the Youtube transcript into Notebook AI and got out the following summary...

Filtronic's success is tied to its work with SpaceX's Starlink, providing technology for ground stations. The company has potential for significant growth by securing contracts for satellites and other low Earth orbit projects. While the stock has already seen substantial gains, further contract wins could justify an even higher valuation. Currently, the stock price might seem relatively full, however future contracts have the potential to dramatically increase sales and profit. The speaker stresses the importance of monitoring contract wins to evaluate the company's future performance and potential for continued growth.

The last sentence is the most important!

doctor dave

Thanks again Roland, great write-up.

I think most Stocko regulars know that this is not "your sort of stock" as you are more a value based commentator, and naturally more aligned to caution, if I may say that. Everyone has their style.

Certainly Filtronic (LON:FTC) is higher risk, and it is also, as we have already seen, higher reward. From here it could go to the Moon or back to Earth or orbit somewhere in between, so having tortured the metaphor long enough there, I'm pleased to be able to see that I can be right whether I sell, hold or buy!!

John LA

Astounding piece of research , thank you, do you intend doing this type of analysis going forward?

rmillaree

imho its all about 2026 and why the estimates are so low

are these estimates on the ball as 2025 is bumper year not to be repeated in which case sharepice looks expensive at best

or is 2026 uber conservative and that mangement know they will be upgrading 2026 to match and probably exceed 2025 in which case the conservative forecasts and perhaps painting misleading prospects ref how good 2026 will be. i dont blame any mangement for basing 2026 now only on signed contracts - there is middle ground here to make that clear in shareholder communication.

if earnings do end up as currently flagged up as expected in 2026 without at the same time flagging in
"much better" in 2027 - then current shareholders not exiting while multiple is pe of 37 can have no complaints.

If in doubt i suggest that standing on the sidelines is probably the "safer" option as to me at present the shareprice has factored in expectations of "broker upgrades" being needed.

I suggest that those without deep knowledge here are ultimately guessing how rosy the future may be.

Do holders trust spaceX/musk not to actively be looking to take this stuff in house or finding alternatives ? £230 mill might be pocket change but we all know Musk can be the most anal person on the planet "when he wants to look after his companies pennies" so whilst buying th company would be loose change - i would guess he would like to remove ftc and take in house if he was made aware of spend and if he thought they could do it in house. logic dictates one shouldnt ditch solid working stuff that is tried and tested but onbthat subject musk has always i think preferred vertical integration. Hey ho they do own part of the company though.

Note this is often the problem withg "quality companies" its possible to look at company delivering on all levels and presume things will go wrong when their is no evidence - personally myself the low 2026 forecasts are slight red flag unless their is clear communciation from company explaining that - the reality is they are trending more towards 5p plus eps than 2.75p.

Harry Hindsight

Isn’t Starlink about an alternative internet system covering places masts and cables can’t reach and the risks in such infrastructure to bad actors. And if provide a more cheaper and more reliable service to Verizon TMobile etc. An IPO likely so Musk can recoup his money for the next big thing with X in the name.
Anything else in this space we can get in early?

Lolarose

Thank you Roland for going into depth for Filtronic. Always beneficial when done by a professional rather than a long term biased holder that I am. I still feel that there will be more good news in the pipeline sooner than later.

planetx

Roland

Thanks for the analysis

I recall having a debate / discussion with Paul Scott about filtronic when it was circa 20p and “expensive” and “jam tomorrow” and. “Depends on future growth” way back then

Fortunately I had Done a deep dive so knew about both the rising tide and the “major customer” , and so had a somewhat better understanding .

Might have just been lucky but this really is about DYOR and learn as much as you can about the company. The market , the products etc .

My biggest mistake has been to take on board at various stages upwards the opinions of others and not trusted my own due dilligence

Edward Croft

Terrific piece Roland. Very comprehensive and rounded view. Many thanks.

johnsmith68

What an excellent article - thanks Roland. A thoughtful and well reasoned analysis to becalm the sea of polarised views.

Paul Walton

I think one has a tendency to think too much sometimes, analysis paralysis. Enjoy the ride (etr) while it lasts ;-)

Viz

19th Feb

In a way, yes. Ast Spacemobile (NSQ:ASTS) operates in this sphere although direct space to mobile. Look at the market cap though.

Roland: excellent analysis. I am currently on holiday in Italy but my initial thoughts are your balanced and cautious approach is understandable, particularly given the company’s historical volatility and the concerns around customer concentration. At the same time, the company’s recent trajectory—both in terms of financial performance and strategic positioning—suggests it is operating from a position of strength and as Ed commented, timing here is key - having held from circa 12-14p, my position and view is mofre looking up, than down; however -I do try to operate on a worst case scenario basis.

The reliance on SpaceX is a key risk, and the forecasted earnings dip in FY26 is something that should be considered. However, Filtronic’s engagement with multiple high-profile clients, indicates a broader opportunity pipeline beyond just SpaceX. While it remains to be seen how quickly these relationships translate into meaningful revenue streams, the company’s continued investment in new technology suggests they are proactively working to diversify.

Regarding valuation concerns, Filtronic’s premium pricing likely reflects not just its recent performance but the potential for continued success in high-growth markets such as LEO satellites and defence. While a pause or correction in share price wouldn’t be surprising, as a longer term investor - this doesn't bother me, I see it as the beginning of the ride: your perspective on the importance of different investment philosophies is spot on. Those prioritising stability and looking at historical figured might find Filtronic too speculative, while those focused on innovation and market positioning may see it as an opportunity.

Ultimately, as you say, differing views and timeframes are what make a market. As Yiannos told me "Most people arrive late [to the party] and drunk! I prefer to arrive sober but leave drunk!"

pippasfan

Filtronic ticks my boxes, and so does this brilliant research

Fire Juggler

Thanks Roland, excellent 360 degree research. Though perhaps leaning to glass half empty.

I hold FTC and like many am aware of customer concentration risk.. But I believe most smallish growth companies reach exit velocity with only 2 or 3 key customers on board. I realise FTC have had false starts before but this time feels different. Anchoring on previous fails seems negative when they could also be viewed as invaluable learning opportunities.

There are only 6000/48000 planned satellites in operation at present, i believe and Starlink has just 4M paying customers of a TAM of c3Bn. With by far the largest opportunity in mobile starlink (see exclusive T-Mobile deal in the US) . Add to that, FTC have invested in two new production lines. Two. (Count'em) which shows both ambition and wise capital allocation.

The real danger for me is the reputational risk of Brand-Musk. He's not the man he was 10 years ago. Ketamine, unlimited money and power will do that to you. He's managed to turn $44Bn Twitter into a troll central $9.7Bn X. His support of pump and dump DOGE coin and DOGE Trump is - to put it mildly, alarming. He's increasingly good at picking a fight in an empty room. And when he goes down which seems almost inevitable - SpaceX I fear, may lose it's shine. As Tesla already has amongst the early adopters.

That said. I believe FTC has a fantastic opportunity as they carry the ming vase across the slippy floor that is tech innovation. Some may say they have been lucky. And maybe they are, if luck is preparedness and opportunity, and of course a good dose of perfect... ...timing.

Roland Head

Planetx,

Absolutely - small caps situations like Filtronic (LON:FTC) are all about discovering the opportunities with DYOR and independent thought.

You have to really understand why you're holding to be able to benefit from big winners, IMO.

Well done for spotting it way back when!

Lochinver

20th Feb

Really excellent analysis. I shall use this approach as a template for reviewing other businesses in my portfolio.

One other risk I would flag up with Filtronic ( I hold) is the possibility of over trading. Growing very quickly (from a small base), very high order volumes from an historical perspective and investing in new production lines in short time frames, for what is a highly complex and high specification product, can put a huge pressure on management to retain control. And on the supply chain and all members of staff.

Not an easy juggling act at all. Speaking from experience of the foul ups that can happen in these kind of circumstances !

fft100

21st Feb

If I recall correctly, at the mello derby presentation last November, FTC said that the lifespan of the LEO satellites was only 7 years. This would indicate that there is going to be a very high recurring revenue launching replacement satellites as well as launching new ones. If we get to 42k satellites, that would be 6k replacement satellites launches alone. Which, I think, is about the same as the number of launches last year.

Brookside Hardwick

25th Feb

Great article.

1st Mar

Vietnam to fast track a trial of Starlink (to curry favour with US tariff negotiations).
How wide is the moat and how open to copycatting. Putting a news alert so will get an email if miss the rns.

donald pond

3rd Mar

Mentioned in the Mail on Sunday yesterday as the most likely takeover candidate on the LSE. May explain some of today's strength.

What's next for 10-bagger Filtronic?

Summary

Pros:

Cons:

Profile

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Roland Head

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