Portfolio

Filtronic flies back to profits, eyes new mobile network customers

By Oliver Haill

Date: Tuesday 01 Aug 2017

Filtronic flies back to profits, eyes new mobile network customers

(ShareCast News) - Filtronic, which makes microwave electronics for the wireless telecoms market, swept back into the black after sales rose 160% in the year to 31 May.
The AIM-listed firm's revenues were principally driven by strong orders from within the wireless segment, which lifted earnings in that side of the business back into profitability and the group as a whole.

Group revenue of £35.4m fed through to an adjusted operating profit of £1.8m and a £2.2m pre-tax profit, versus a loss before tax of £7m last time.

Earnings per share of 1.51p compared to a loss per share of 3.2p.

Cash of £3.9m was generated from operating activities, leaving £2.6m in the bank at the end of the year.

Wireless sales of £30.5m were boosted by antenna orders from Filtronic's lead customer, mostly in the first half of the year with some disappointment from the customer about a lack of follow-on demand for this product variant.

But Filtronic said executing these contracts demonstrated its ability to "introduce new products and rapidly ramp to volume production whilst controlling costs to ensure that we make a healthy margin for the business".

Filter sales were good and new product development was focused on antennas and the filters that they use.

Progress in the wireless division is expected to remain lumpy due to reliance on one main customer after consolidation in the industry, which it has tried to counter by selling direct to mobile network operators, which has higher costs and will take time.

The smaller broadband arm, which makes transceivers, sub-systems and components for mobile and defence & aerospace, saw sales slightly above flat a £4.9m.

Chairman Reg Gott said both divisions made progress toward the key strategic objectives of broadening the customer base and expanding the product portfolio in order to widen addressable market and return the company to profit.

"Notwithstanding this progress, we are still in the early stages of this strategy and the bulk of our revenues will remain concentrated across a small number of customers in the mobile telecommunications infrastructure market for the near term," he said.

Responding to concerns about announcements by Nokia and Ericsson that 2017 may be slightly more challenging than they previously expected, he said the board "remain confident in our underlying strategy as market focus increasingly turns to 4G network densification and the nascent 5G opportunity to meet ever growing data capacity demand".

"We are confident these trends will play to our core strengths and position us well to capitalise on these opportunities as both 4G densification and 5G technology requirements align with our growing activities in the defence, public safety and satellite communications segments of the market."

Broker Panmure Gordon said cash flows were stronger than initially expected and reiterated its 'buy' rating.

"All in all, another tick in the box for Filtronic," said analyst Adrian Kearsey.

"We are mindful that Filtronic needs to convert the pipeline to drive sales materially higher. That said, the prospects are building across both segments, reflecting product innovation and enhanced sales capability.

He said the transformation of Filtronic operationally and as regards product positioning has "taken important steps forward" and he expects this to be reflected in the share price over the coming months as investors "recognise the increasing value of the technology and the opportunities to broaden the client base".

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