Solid State LON:SOLI, the Redditch-based electronic components distribution and manufacturing company published a trading update for the year to end-March 2023 yesterday (30th October).
As previously reported, Solid State is a specialist value added component supplier and design-in manufacturer of computing, power, and communications products.
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Following on from a record set of results in March Solid State published its final results in July where the company reported 2023 revenue of GBP126.5m, 48% up on 2022. This related to adjusted profit before taxation of GBP10.8m, up 50% y-o-y and adjusted fully-diluted EPS of 80.7p, up 14% y-o-y.
However, Solid State’s net debt increased 56% from GBP5.2m in 2022 to GBP8.1m by the end of March this year. The company had an open order book of GBP116.2m at the end of 1Q23, up 30% from the same time in Match 2022. The company declared a 20p dividend, up 3% year-on-year.
The company started the new financial year strongly and the ongoing War in Ukraine and the emerging War in Gaza has meant that it has taken in strong orders in its defence and security division. Post-Covid-19 pandemic has also seen Solid State’s medical division also benefit, especially in the design segment.
Positioned to take advantage of high growth sector
As previously reported Solid State acquired Custom Power, a US battery pack manufacturer acquired in August 2022 for USD45m and is now an integral part of the group, providing US battery power production. Solid State has continued to see the benefits of the excellent collaboration between its UK and US teams to create product and market development opportunities and said: “[this demonstrates] the value of the strategy of internationalising the group and positioning it to take advantage of this high growth sector.”
About a year ago, Solid State won around GBP17m of contracts with NATO which has mostly been delivered and so the associated inventory and payables position is now unwinding, but it has spent a year investing in inventory given John Macmichael, managing director of the components division earlier comments that post-Covid and as a result of the Ukrainian conflict, supply lines had been stressed in 2022 and early 2023. The company also, given the interest rate cycle has prioritised paying down net debt and was confident of achieving its uprated (by the two brokers that have Solid State under coverage) expectations which predicted 2023/24 Revenue of GBP147.3m, profits of GBP11.9mand debt of GBP3.1m.
Solid State revenue and profit up
In its latest update, for the six months to end-September, Solid State reported GBP88m of revenue – up from GBP59.4m, a 48.1% increase. The company also reported GBP7m of profit before tax, 67% up on the six months to end-September 2022 and the company said the half-year-to-date has been one of strong cash generation, which should help to reduce the company’s net debt.
A lot of the performance was driven by the company’s security and defence division, which fulfilled GBP23m of orders in the period and was able to book a full period of revenues from Custom Power.
Solid State reported an open order book of GBP99.7m a bit down from the GBP112.5m it booked this time last year, however of that order 60% expected to be booked as revenue in the current financial year.
Earlier this month Solid State issued 3,500 new shares at 5p to fulfil the exercise of options by an employee.
The AIM-listed company opened the week at 1,139p but jumped to 1,168p within the first hour of trading before settling 1,152p by lunchtime. Solid State has offered a year-to-date return of -19.2% and a one-year return of 1.2%. The company has a market capitalisation of GBP123.5m and its shares have ranged between 1,010p and 1,475p over a 52-week period.David Buxton, an analyst at broker, Cavendish commented: We are upgrading FY24E revenue by 5.4% to GBP155.5m, with adjusted profit before tax up GBP0.6m to GBP12.5m, giving adjusted EPS of 85.4p up 5.3%. We improve net debt by GBP1.1m to GBP4m. No change to FY25E at this point, and now looking conservative and flat y-o-y. The group moves into net cash of GBP0.7m.”
Buxton continued: “The shares remain attractive, trading on a discount of 18% to its nearest comparator, DiscoverIE LON:DSCV. We raise our target price in-line with the EPS to 1,620p, based on a FY25E EV/EBITDA of 11.5x and P/E of 19.3x, offering significant upside to the current EV/EBITDA rating at 7.7x and P/E of 13.0x.”
John Cummins, an analyst from WH Ireland agreed with Cavendish. He said: “Today’s announcement represents another positive update from Solid State PLC, with strong revenue and profit growth reflecting both the group’s excellent record of acquisitions and its position within attractive markets which display structural growth drivers. The shares have declined by 20%+ since their peak earlier this year and now trade on an undemanding FY2024E PER multiple of 12.8x, which represents an unjustified 30% discount to the wider peer group. Our fair value estimate stands at 1,550p.”
