Solid State (AIM: SOLI) took a dive back in March when it guided forecasts down following delays in its antenna business. It also announced the closure of its electronic monitoring unit in the aftermath of the aborted Ministry of Justice contract. The recent results reflect these factors, but positive news on the order book suggests that the company can return to making progress.
Solid State specialises in ‘ruggedised’ electronics, products which perform in reliably in harsh environments or from being knocked around in everyday use. It pitches itself as able to do ‘the difficult things that smaller companies can’t do and that larger manufacturers don’t want to do’. Last year saw revenues up just 2 per cent after stripping out the discontinued business. Those delayed antenna orders held back profits since this is a particularly high margin area with ‘cutting edge’ products for defence applications.
Speaking to management there’s a sense that things are definitely improving, which echoes the recent message we got from fellow electronics business, Acal. There’s a ‘broad improvement in demand’ and order books stand at a record £20.7 million, up 16 per cent from last year. First quarter order intake to June was strong and the book-to-bill ratio stands at over one – meaning new orders are outstripping deliveries. Exports are a feature, rising to 20 per cent of total sales, up from 15 per cent last year, helped by currency and the acquisition of Creasefield which has good exposure to Germany.
The balance sheet is ungeared and the company is looking to make an acquisition each year as part of an ambition to double its size over the next five years. Management are understandably keen to beat market expectations after recent disappointments, so forecasts look conservative against this backdrop. Broker WH Ireland has the shares on a p/e of 12.5 for the current year, falling to 11.3 to March 2019. Add in a 3 per cent yield and Solid State looks decent value.