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Solid State expecting record revenues on strong second-half


Solid State [LON:SOLI], the Redditch-based electronic components distribution and manufacturing company published a trading update for the year to end-March 2023.

As previously reported, Solid State is a specialist value added component supplier and design-in manufacturer of computing, power, and communications products.

Building on a solid set of results in December, Solid State grew its business both organically and through acquisition in the period, reporting record revenues and a strong order book.

Strong second-half

The AIM-listed electronics company had a strong second-half trading, and was looking at revenues of at least GBP125m, up 47% year-on-year, the company’s best performance to date. Twenty percent of this revenue growth was from Solid State’s own operations. It also added significantly to its revenues through the acquisition of Custom Power, a US battery pack manufacturer acquired in August for USD45m, which was funded by an oversubscribed placing raising GBP28.3m before expenses and GBP13m of new bank debt facilities provided by Lloyds Bank.

The Custom Power acquisition not only enhanced Solid State’s product range, but increased its market penetration. Custom Power’s open order book was up 11% on the prior year to USD18.6m, and management are expecting more to come from the Los Angeles-based manufacturer.

The increased revenue has also led to an increase in expected profits, which the company expects to come in at around GBP10.5m, up 46% on the GBP7.2m profit booked in 2021. The company still is grappling with supply issues following Covid and the War in Ukraine. John Macmichael, managing director of the components division previously told The Armchair Trader: “we […] are seeking out new supply lines with emerging markets [in component manufacture] like Turkey or India.”

Solid State supplies commercial, industrial and military markets with durable components, assemblies and manufactured units for use in specialist and harsh environments.  The company specialises in industrial and ruggedised computing, displays, battery power solutions, communications including antennas and secure radio systems, imaging technologies, electrical and electronic components and is involved in assembly as well as the supply of components.

The company said: “Driving and improving adjusted operating margins remains a focus and, despite ongoing supply chain challenges, they are expected to be at least maintained or marginally improved at circa 9%.”

Supply chain bottlenecks

During the first half of the year, Solid State has been building up its inventory to support order fulfilment, as-and-when, to mitigate global supply chain bottlenecks. The company said: “Whilst some stability has returned to the component supply chain, inconsistencies remain such that pro-active inventory management continues to provide competitive advantages to the group and supply chain confidence for clients.”

Global uncertainty is creating a boon for Solid State, as nation states are prioritising spending on security and defence. The company now attributes 20% of revenue to Security and Defence and the group “has been successful in building relationships with Tier 1 suppliers to the security and defence sectors, such as BAE Systems and NATO, and sees further growth opportunities in this sector,” according to a statement to the market.

At the end of last year, Solid State had notable contract wins to supply communications equipment to a client in the defence sector through NATO. The company said: “While these contracts are likely to dilute the margin mix within the systems business in the year ahead, they will contribute positively to the attainment of expectations for FY23/24 and provide a foundation for long term recurring revenue in this sector as the group targets ‘through-life’ support opportunities.”

The company has also been developing its medical and transportation segment following the previous acquisitions of Willow Technologies and Active Silicon.

Increased open orders

Solid State reported an open order book of GBP120.1m, a 40.5% increase on the open order book from a year earlier. The order book is spread across a year-and-a-half but should narrow as the global supply chain catches up with outstanding orders.

In an environment of rising interest rates, Solid State has been paying down its net debt from surplus cash generated, and expects this to fall to around GBP9m.

Management has set itself a target to maintain in excess of 20% compound growth in total shareholder return over the next phase of the Solid State’s development to 2030, and with record numbers expected this year, the company has a strong platform to achieve this ambition.

The AIM-listed company opened trading yesterday (4th April) at 1,139.8p and has offered a year-to-date return of -22.3% and a one-year return of -5.1%. The company has a market capitalisation of GBP124.3m and its shares have ranged between 968.4p and 1,475p over a 52-week period.

FinnCap, the broker said: “[Solid State’s latest] update confirms strong 2H22 trading, in line with forecasts The group’s year-end trading update is encouraging, pointing to strong 2H22 trading resulting in FY performance at least in line with consensus expectations, confirming our existing adjusted Profit Before Tax forecast of GBP10.5m.”

The broker continued: “Custom Power has integrated well and is performing in line, albeit will not trigger its final earnout contingent consideration. The order book has risen by 40.5%, with stronger 2H22 cash flow helping to reduce net debt to GBP9m, better than expected. We maintain our existing target price of 1,535p, offering decent upside scope to the current FY24 P/E of 13.8x.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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