James Mackreides predicts that the phenomenal rise of the British stock Filtronic is just beginning
Finding exciting, undervalued opportunities on the London Stock Exchange is becoming more and more difficult due to the constant stream of companies being taken over or delisted and the absence of a pipeline to replace them. This means that when opportunities present themselves, it is even more important for investors to move swiftly and decisively.
Filtronic is one such opportunity (Aim: FTC). It is a UK-based company that designs and produces high-performance millimeter-wave and radio-frequency microwave components and subsystems for the aerospace sector. It has established a globally dominant market niche in this area over the last ten years, and it is currently benefiting from this.
Filtronic's transformation.
Public safety, defense and aerospace, and mobile telecommunications infrastructure have historically been Filtronics' three primary areas of focus. These industries' orders gave the company a consistent flow of income, but in a fiercely competitive market, it was difficult for the company to expand and stand out. Both revenue and share price stagnated. Filtronic's stock hardly ever traded above 10p per share after switching from the main market to Aim in 2015.
When European nations increased their defense budgets in 2021 in reaction to Russian aggression, the outlook began to shift. As businesses like Elon Musk's SpaceX started deploying satellite constellations in greater quantities, the company also began to draw interest from the space industry. To obtain worldwide coverage at a fraction of the price of conventional geostationary orbital satellites (GEO), SpaceX and other industry pioneers have resorted to low-Earth orbit (LEO) satellite constellations. LEO constellations are made up of thousands of smaller satellites that can be mass-produced, launched in large clusters, and work together to increase range. Since starting its Starlink LEO constellation in 2019, SpaceX has launched over 7,000 of its satellites into orbit. In the upcoming years, there may be up to 55,000 LEO satellite launches.
In 2023, Filtronic revealed its first round of contracts to provide LEO satellite communications equipment. One deal, totaling £32 million, was with the European Space Agency to develop multi-frequency transceiver technology for satellite payload feeder links. In addition to giving the business a competitive advantage, the string of smaller contracts allowed it to reinvest funds in R&D. A revolutionary long-term partnership agreement with SpaceX was reached in April 2024 as a result of these investments.
Elon Musk and Filtronic are allied.
Filtronic has entered into an agreement with SpaceX to acquire the company's E-band solid state power amplifiers. These tools facilitate communication between SpaceX's Starlink constellations and ground stations, making them essential to the operation.
Filtronic gave SpaceX warrants under the terms of the deal, which gave SpaceX the right to subscribe for up to 10% of the company with a five-year vesting period. Based on the volume of orders, the warrants vested in two equal tranches: the first after £37 million in orders, and the second before the remaining £60 million. Additionally, SpaceX outlined plans for the upcoming generation of these gadgets. The warrants' second tranche is contingent on the technology's continued advancement.
Revenue increased by 56.3% during the fiscal year 2024, while EBITDA (earnings before interest, tax, depreciation, and amortization) increased by 280 percent. Due mostly to the SpaceX contract, the company's revenue increased by 202% in the first half of its 2025 fiscal year. As the first phase of the contract with SpaceX came to an end, Cavendish analysts had predicted revenue to decline in fiscal 2026 after two years of expansion. According to Cavendish, revenue would drop to 41 million in fiscal 2026 from 48.4 million in fiscal 2025. In fiscal 2027, it anticipated growth to pick up speed again as the second phase of the SpaceX contract began to pay off. However, on February 10th, Filtronic shocked the market by declaring that it had secured a new deal with SpaceX worth £20.9 million (16.8 million), which would be completed in 2025 and 2026.
Filtronic's eyes are focused on the stars.
This transaction was another example of how revolutionary the SpaceX agreements have been and how management has used the funds to spur additional expansion. Filtronic has made significant investments and is still making them in order to fulfill the requirements of its large contracts with SpaceX. The business spent £21.1 million on capital projects in the first half of the year, and it anticipates spending about £20.4 million in the second half. Cavendish had Filtronic end the year with 10.4 million in net cash, up 100% year over year, despite this growth. Because its technology is proprietary and custom-made, its EBITDA margin was 19% in 2024 and is projected to reach 28.3% in 2025.
It's risky for Filtronics to have just one major client, but it's gaining business and using its SpaceX experience to reach other LEO markets. The deal's profit is also being used to finance substantial R&D to spur expansion in other markets. The stock is trading at a forward price/earnings (p/e) ratio of about 20 on a fully diluted basis after cash is stripped out, according to the company's most recent transaction. Considering its market positioning and product line, the stock's current value isn't particularly high, despite the fact that it has increased tenfold since 2021.
Additionally, the business is a desirable target for acquisitions. Filtronic is smaller than other SpaceX suppliers in the network communications space, like Taiwan-based Wistron NeWeb Corp, but it has the potential to be a very alluring bolt-on acquisition.
Price of Filtronic shares.
(Photo source: Aim).
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