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From battlefield to broadband: Filtronic targets next-gen defence and space contracts

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Filtronic [LON: FTC] the AIM-listed electronic components business, with operations in Durham, Leeds and Maryland, is expecting an outstanding year, having booked over GBP25m of new business since the mid-point of last calendar year, as well as taking in grant funding from the UK’s Ministry of Defence.

The designer and manufacturer of products for the aerospace, defence, telecoms infrastructure and critical communications markets feels that it will comfortably exceed market expectations for the next half year.

Talking to The Armchair Trader, Richard Gibbs, Filtronic’s chief executive used a footballing analogy to describe the company’s performance: “It’s been a game of two halves,” Gibbs said, “the contracts we secured in the second half will materially impact top line growth for the year.”

The company’s last published results covering the half-year to the end of November were on paper disappointing. Revenue was GBP8.5m, up just over 1% year-on-year with earnings falling 80% to GBP200,000 and Filtronic managing to flip a GBP0.5m operating profit into a GBP0.4m operating loss y-o-y on the back of increased costs. However, the cash the company generated was GBP1.8m, up GBP2m from the year previous.

Filtronic strategic position

Despite this, given the subsequent contract wins, the market has been lumping-on Filtronic and given its strategic position, as previously reported, at the conjunction of Defence, Space, Telecoms and Aerospace, Gibbs believes that the company is in the right place to deliver on its a strategic plan designed for revenue growth and shareholder value.

The company opened the week’s trading at 42p, up 214% in one-year with its shares ranging from 10.68p to 41.75p over a 52-week period. City analysts think that Filtronic still has room to grow with Edison’s Katherine Thompson believing that Filtronic’s 1H24 results mask recent success.

She said: “The share price implies revenue growth of 10% per year for FY26 to FY28 coupled with the EBITDA margin rising to 23% by FY28. Several development contracts have the scope to provide substantial production volumes if successfully converted and we believe could potentially support a higher growth rate and for a longer period.”

Stronger order book and pipeline

Thompson’s comments we echoed by Edward Stacey, director of research for Cavendish, who thought: “The current management team has applied a disciplined approach to expanding the base of commercial applications for [its] IP, and the company now has a stronger order book and stronger pipeline than has been the case in previous expansion phases.”

The recent contract wins have delivered Filtronic a strong orderbook and an increasingly positive trading outlook for FY24 and a significant orderbook and opportunity pipeline heading into FY25 give that most of the recent wins will not start to impact revenue and earnings until later in the year.

Gibbs argued: “If we project our recent performance forward by three or four years, we see healthy compound growth in revenue and earnings. In the second half of the year, we’ll be doubling. We anticipate next [financial] year as one of consolidation before we kick on in the following year.”

Expanding the client base

Although Filtronic has been around since the 1980s as a defence contractor, before diversifying into telecommunications in the 1990s, the company has historically had quite a narrow and focussed client list, mainly government entities, especially in its defence portfolio. One of the encouraging aspects of the firm’s recent new business highlighted Michael Tyerman, Filtronic’s CFO, was that it was with a number of new clients that it previously hadn’t booked any business with. This, said Tyerman, was important as it not only diversified Filtronic’s sales base, but also allowed the company to strengthen its margins, part of the company’s intention to drive EBITDA margins into the 15% to 25% range in the near-term.

Some of the new clients that Filtronic secured included FTSE250-listed QinetiQ LON:QQ. and BAe Maritime, part of the BAe Systems LON:BA. group and the company is expecting, given the current political climate, and the push for NATO countries to increase defence spending to at least 2% of GDP that Defence will continue to be a major contributor to its revenues in the near- to mid-term.

Greater reliance on battlefield communications

Gibbs highlighted the field of battlefield communications as a key sub-sector, he said: “our solutions are about getting greater efficiency [for militaries] out of the existing communications infrastructure. In the current conflict in Ukraine, we see how battlefield communications has been revolutionised with a greater reliance on mobile, satellite and drones.”

He added: “In the UK our battlefield communications system [the Bowman C4I system] is 30-years old and is in critical need of an upgrade.”

Filtronic focuses on four strategic verticals – Low Earth Orbit (LEO) space, aerospace, defence and terrestrial telecommunications and Gibbs sees LEO as another significant growth market. Gibbs said: We’re very excited by the Space opportunity. We didn’t believe that it would grow as quickly as it has, but it is being driven by a couple of very wealthy individuals, who are not only putting a lot of money behind it, but a lot of effort; with a lot of that effort concentrated on low space orbit.”

Transformative opportunity for Filtronic

Away from tabloid headlines of space tourism and exploration, the real growth and momentum in the Space sector is in lower orbit satellites and their ground stations. This complements the telecommunications business of Filtronic and the company sees the USD1.5bn radio frequency communications element of the slated 3,000 LEO satellites scheduled to be launched in the next three years as a transformative opportunity for Filtronic.


A good example is the growth of the Starlink Network supported by SpaceX as the clear market leader in LEO Space infrastructure with 300 launches, 5,000 LEO satellites deployed accounting for 80% of all payload in 2023 and more than four million subscribers. The growth story is not one of exploring strange new worlds; seeking out new life and new civilizations; and boldly going where no man has gone before, but more about supporting the government’s, the financial sectors’ and the general public’s communications and data needs, and it is here that Filtronic believes it has the solutions to make an impact.

Committment to organic growth over acquisition

Filtronic is committed more to organic growth than growth by acquisition, committing significant budget and human resource to research and development and building better products. Gibbs’ biggest concern was securing enough human resource to support the firm’s development growth given that there is a current shortage of engineering talent being produced by the universities. He said: “We prefer to grow organically, but if we see an opportunity in engineering where another company can add a specialised engineering capability to what we already have, that would be the kind of acquisition we would consider […] but what we want to do is attract the best engineering talent from around the world and we can offer them incredible projects in key sectors where they can really make a difference.”

Filtronic is on the launch pad with the igniter injected, the propellant heating and ready to spark. In the next six months the foundations set in 2023 should come through and start to influence profitability. Filtronic becomes ‘One to Watch’.

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