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Broadband kit firm’s interim results Fil Private Punter with hope

Back in May of this year I took a close look at Filtronic, the Leeds based designer and manufacturer of broadband microwave and base station products for wireless telecommunications systems. My highlighting the company was very much based as a recovery play, where having undertaken a number of structural and management changes along with some notable contract wins the shares looked worthy of an interest at just 10p each. Fast track a few months to the current and Filtronic has just announced its preliminary results which make for some more pleasant reading in contrast to the previous few years.

In light of releasing its numbers I was fortunate enough to catch up with management this morning for a few words in order to glean a little more regarding both the current and forward picture. But first, a quick look at the results which on the immediate face of things may not have looked particularly inspiring. Revenue for the year to May 2016 came out at a reduced 13.6m against the corresponding period of 17.5m, whilst the adjusted operating loss was 6.8m against the previous 8.1m.

These results were largely as expected, although Broker Panmure Gordon which issued an in depth note titled Dial T” for Turnaround cited that the anticipated losses actually came out slightly better than it had expected. Initially this morning the shares slumped 7% having enjoyed a tick up in recent days and no doubt speculators decided for whatever reasons that it was time to exit. Of course a profit is a profit, it leaves something for the next man and punters make their choices and there is nothing wrong in that.

However, investors who previously bought into the story on the basis of recovery and longer term rewards were no doubt smelling the coffee this morning as real progress on a number of fronts appears to be not just emerging, but beginning to flow.

READ MORE: Former dot com darlings Filtronic fight back1

CEO Rob Smith sounded a cautious note of confidence as he told me, we see momentum that is beginning to build now and as a result we are also now seeing traction”.

“We believe that we are very much in the right place at the right time and feel strongly that the market is growing, with increased demand providing a good back drop”. Having endured some tough years, Smith explained to me that a previous focus on the filter products serving base stations had come under severe pressure from other entrants to the market such as the Chinese. That necessitated a shift in focus being required along with a maximising of the tech potential within the company to actively target higher end-margin products.

Although it clearly hasn’t been an easy period of transition and recovery the signs certainly look more positive than for some time with significant cost savings being achieved alongside a number of major orders from a world leading wireless infrastructure OEM for its new Integrated Antenna product line. But despite its new E-band module Orpheus being extremely well received which has seen its lead customer ramping up demand which comes alongside other very positive order intake, Smith recognises the need to further improve both the sales and marketing activities which have already begun to deliver. Areas such as mobile telecommunications and the adjacent markets of satellite communications could be boosted by additional sales wins across defence and aerospace as Filtronic looks to broaden its reach within its range of operations.

This of course brings us to the thorny issue of funding, as a ramp up in orders puts pressure on working capital and where it is worth recalling Filtronic has over the last eighteen months gone back to the market for additional funds at lower levels than would have been envisaged just a few years back. To this end, Smith says that they believe they do have sufficient funding for their needs and nothing is planned on that front, although he does wisely add the caveat that should there be a dramatic increase in business then options remain open. Having now resided over a more recent and substantial growth in orders, alongside an increasingly attractive pipeline of opportunities the next couple of years could result in further progress as envisaged by Panmure Gordon who have now installed guidance beyond next year into 2018.

The broker is forecasting full year revenue for the year in progress of 34.6m paving the way for a return to profit with a pre-tax figure of 1.4m. That is expected to accelerate into the following year with sales at 39.3m and a more notable pre-tax profit of 3.2m giving EPS of 1.2p. Despite the shares coming off in early trading, buyers moved in, no doubt on the basis of both progress and potential where as I write, the stock trades at 13.75p.

That may subsequently prove to be cheap further down the line, if the company can deliver on the product promise and manage the inevitable timing timing of orders which are largely dictated by specific roll-outs.

Panmure Gordon’s target price has been raised today to 29p from the previous 24p, which if achieved would no doubt reward the confidence of those who bought in at the much lower and depressed levels.


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