Solid State — H121 broadly comparable with record H120

Solid State (LSE: SOLI)

Last close As at 27/03/2024

GBP13.25

−70.00 (−5.02%)

Market capitalisation

GBP159m

More on this equity

Research: Industrials

Solid State — H121 broadly comparable with record H120

As flagged in its post-close trading update, Solid State’s revenues and adjusted profits for H121 are similar to those for H120, despite the coronavirus pandemic. While the shortening of client order scheduling related to the uncertainty caused by the pandemic has continued into H221, management notes recent positive trends in order intake and reiterates its view that the FY21 performance will be similar to FY20.

Analyst avatar placeholder

Written by

Industrials

Solid State

H121 broadly comparable with record H120

Technology

QuickView

8 December 2020

Price

650p

Market cap

£56m

Share price graph

Share details

Code

SOLI

Listing

AIM

Shares in issue

8.5m

Business description

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

Bull

Added-value design capability supports long-term relationships with customers and higher margins.

Core competences in computer, power and communications serve markets growing in response to central government funding priorities.

Scale attracts new franchises such as Microchip and VPT.

Bear

Revenue development dependent on OEM customers’ sales and marketing activity.

Shortening in order book visibility caused by market uncertainty.

Delays affecting high value-added manufacturing projects for government-funded and major infrastructure programmes are commonplace.

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Solid State is a research client of Edison Investment Research Limited

As flagged in its post-close trading update, Solid State’s revenues and adjusted profits for H121 are similar to those for H120, despite the coronavirus pandemic. While the shortening of client order scheduling related to the uncertainty caused by the pandemic has continued into H221, management notes recent positive trends in order intake and reiterates its view that the FY21 performance will be similar to FY20.

COVID-19 has had limited impact so far in FY21

Group revenues declined by £0.5m year-on-year to £33.1m. Value Added Supplies revenues were unchanged at £19.5m, supported by the broader portfolio of products offered and the enhanced access to the medical sector following the acquisition of Pacer in November 2018. This contrasts with a 10.5% dip for the UK components distribution market. Manufacturing revenues fell by £0.5m to £13.5m, with rising demand from the security, defence and transportation markets partly offsetting the weakness in the oil and gas and commercial aviation sectors. Group gross margin was stable at 29.9%. Profit before tax (adjusted for share-based payments and the amortisation of acquired intangibles) reduced slightly, by £0.1m, to £2.5m. Net cash increased from £3.2m at end FY20 to £4.0m at end September 2020. The group also has a £7.5m unused revolving credit facility. This balance sheet strength supports the payment of an interim dividend which is unchanged at 5.25p/share. It has also enabled management to restart its capex programme and acquisition activities, both of which were paused at the start of the pandemic.

Resilience through the diversity of markets served

The shortening of client order scheduling related to the uncertainty caused by the pandemic has continued into H221. However, the order book at end September 2020 was only 6% lower than a year previously (£34.3m vs £36.5m, of which c £23.7m was scheduled for delivery during H221). Encouragingly, the three-month rolling average order intake is currently 8% higher than in September 2020. Management has reiterated its expectation of an FY21 outcome that is similar to FY20. Consensus estimates for FY21 have been reinstated with adjusted PBT of £4.4m, which is the same level as prior to the estimates being withdrawn earlier in CY20.

Valuation: Trading at a discount to peers

The shares trade on year 1 P/E multiples at a substantial discount to the mean for both our sample of specialist manufacturing companies (15.1x for Solid State vs 17.5x for peers) and our sample of value-added distributors (15.1x vs 29.0x).

Consensus estimates

Year
end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/18

46.3

3.0

30.9

12.0

21.0

1.8

03/19

56.3

3.5

35.9

12.5

18.1

1.9

03/20

67.4

4.7

46.3

12.5

14.0

1.9

03/21e

65.0

4.4

43.1

12.5

15.1

1.9

Source: Company data, broker consensus. Note: *Adjusted for exceptionals, share-based payments and amortisation of acquisition intangibles.

General disclaimer and copyright

This report has been commissioned by Solid State and prepared and issued by Edison, in consideration of a fee payable by Solid State. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Solid State

View All

Latest from the Industrials sector

View All Industrials content

Industrials

ACWA Power — Record results for FY23

Industrials

Dowlais Group — Motoring forward

Research: TMT

GB Group — Back to investing for growth

GB Group’s (GBG’s) H121 results were in line with its recent trading update, confirming revenue growth of 10% y-o-y and normalised EPS growth of 25% y-o-y. COVID-19-related cost reduction and cash preservation measures helped reduce net debt by £32m h-o-h. FY21 revenue guidance is unchanged and the company expects to return to more normal levels of investment (both opex and capex) in H221. We have made small upgrades to our forecasts.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free