Solid State — Update 28 April 2016

Solid State (LSE: SOLI)

Last close As at 22/04/2024

GBP13.75

10.00 (0.73%)

Market capitalisation

GBP155m

More on this equity

Research: Industrials

Solid State — Update 28 April 2016

Solid State

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Written by

Industrials

Solid State

Ability to maintain profits confirmed

Pre-close trading update

Electronic equipment

28 April 2016

Price

327.5p

Market cap

£28m

Net debt (£m) end September 2015

4.0

Shares in issue

8.4m

Free float

73%

Code

SOLI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

Business description

Solid State is a high value-add manufacturer and specialist design-in distributor to the electronics industry. It has expertise in industrial/ruggedized computers, electronic components, antennas, microwave systems, secure communications systems and battery power solutions.

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Solid State is a research client of Edison Investment Research Limited

Solid State has announced that trading results for FY16 at the group’s core businesses should be in line with market expectations. This confirms that it’s diversified platform will deliver another year of results at FY15’s record profit levels, despite general market weakness and the unexpected termination of the Ministry of Justice (MoJ) contract. This strong result excludes compensation for the terminated contract, which we will treat as an exceptional item. The healthy order book at the start of FY17 supports our forecasts showing modest profit growth, so we leave our estimates and indicative valuation of 505p/share unchanged. The dividend (3.7x cover) represents an attractive yield at the current price.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

32.1

2.4

28.5

8.5

11.5

2.6

03/15

36.6

3.2

37.4

12.0

8.8

3.7

03/16e

44.0

3.2

35.4

12.0

9.3

3.7

03/17e

39.6

3.4

36.8

12.0

9.9

3.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, share-based payments

Management’s creation of a diversified platform with focus on value-added capability to driving margins was key to maintaining profits at prior-year levels. The acquisition of Ginsbury Electronics in April 2015, the development of new products such as next-generation ticketing equipment, which have started shipping, and new franchise contracts all contributed to this.

We expect this strategy to deliver modest profit growth during FY17. The FY16 result included an estimated £5m revenues at very low margin for the initial phase of the MoJ project. Stripping this out, we expect FY17 underlying revenues to be similar to FY16, with new product introductions (we note that the group has recently signed up another three distribution franchises) offsetting market weakness. This view is supported by the order book, which totalled £15.3m at end FY16 compared with £14.4m at end FY15. Noting management’s programme to realise c £0.5m annualised cost savings, we model a 4% year-on-year rise in adjusted PBT. It is likely that management will use the cash given in settlement by the MoJ to fund its ongoing acquisition programme, presenting upside to our estimates.

Disclaimer

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Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Solid State and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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