| Buy Solid State at 221p Say the experts at UKMicrocap.com Since being tipped on UKMicrocap.com at the end of last year shares in Solid State (SSP) have gained 73%! But with positive trading momentum being seen and a desire to add more complementary businesses, the team believe that this specialist electronics business is still a BUY. UK-Microcap.com offers 20 hot new tips like this each year on microcap stocks which have strong potential to double or more in value. The team of specialist small cap analysts will be releasing their latest two investment recommendations next Monday. To access these in-depth reports and get regular updates on their progress, join UKMicrocap.com now. The Business Solid State is a specialist electronics business with particular expertise in batteries and ruggedised industrial computing products used in harsh environments; its operations comprise sales, marketing distribution and manufacturing. Having joined AIM in 1996, the firm has subsequently grown organically and through acquisitions - most notably, Blazepoint (October 2011) Rugged Systems (April 2010), RZ Pressure Systems (2007), Wordsworth Technology (2005) and Steatite (2002), acquired for an average exit multiple of 6 times earnings. Solid State operates in the UK through its two principal trading subsidiaries, Solid State Supplies Ltd and Steatite Ltd, although products are also marketed through a number of industry-leading brands including Wordsworth (displays, networking, embedded systems), Rugged Systems and RZ Pressure (batteries). Each company has considerable operating autonomy, which is important in enabling it to respond to customers' bespoke needs. Distribution (Solid State Supplies) - Operating as a franchised distributor, Solid State has several advantages over non-franchised distributors: for example, preferential pricing and prioritisation in times of short supply. The company distributes products for 20 manufacturers including CML Microsystems, Energy Micro (low-energy microcontrollers), Force Technologies (optoelectronics, logic and memory) and Ixys (semiconductors and RF). The market for specialist technical electronic components is growing rapidly and is expected to outpace growth in the wider electronics market. Manufacturing (Steatite) - Operating from a designated high security classified facility in Redditch in the West Midlands, the company is able to carry out sensitive work for end customers in the defence sector such as the MoD. It also supplies a range of organisations in the oil & gas, satellite, telecoms and government sectors, mainly with hard-wearing components that can withstand extreme conditions, with an emphasis on customisation. Following the acquisition of Rugged Systems, the company also became one of Europe's leading suppliers of rugged PCs, laptops, displays and communications solutions. Solid State differentiates itself through offering a comprehensive service tailored to the client's specific needs, which often sees the company offering an ongoing technical know-how and electronics design skills to customers over a prolonged period. This extra level of value-added service sets the firm apart from distributors such as Premier Farnell (PFL) or Electrocomponents (ECM). Financials Results for the 2012 financial year were slightly ahead of market expectations and a record for the business. Sales were up by an impressive 22% at £25.87 million for the year as the underlying business saw continuing growth and as the 2010 acquisition of Rugged Systems and October 2011 acquisition of ruggedised computer and hand held devices supplier Blazepoint made contributions. The core business, excluding costs of £223,000 associated with the Blazepoint acquisition, saw underlying revenues up by 20% and profits increase by 34%. Group pre-tax profits were up by 29% at £1.6 million and were bang in line with market forecasts. Earnings of 1.5p per share, up 24% , were slightly ahead of forecasts however, with the company increasing the total dividend by 21% to 7.25p per share. On the balance sheet, net assets were 30% higher at £5.1 million at the period end, with net gearing being up from 40% at 47% and net debt standing at £2.39 million. The debt position remains very comfortable, with net finance costs being covered almost 25 times by operating profits. Solid State added that it was confident for the current financial year and beyond, with the order book as at 31st March being £10.5 million,, up from £8.4 million 12 months earlier. The group also confirmed it is looking for further complimentary acquisitions. In a more recent AGM statement the company confirmed the outlook remained positive, stating it, "has made a confident start to the current financial year." and "...it remains optimistic over the prospects for the Company and looks forward to updating the market in due course."
Bull Points Bear Points Evaluation With these results Solid State has continued to show the market that it can successfully deliver, and even beat, expectations. At the time of our original tip in November last year the market was looking for £1.6 million of profits for the 2013 financial year, so in effect the company is one year ahead of where we expected it to be at this stage. At the current price the shares trade on a multiple of around 10 times forecast earnings for this year, however we see the potential for earnings upgrades given the positive trading momentum and desire to add more complementary businesses. A yield of 3.6% is also on offer for 2013, a level which remains attractive. For such a quality business, which has grown revenues by 141% and pre-tax profits by 280% over the past five years, we believe that the current rating does not look expensive. Buy. Concentrating on the smaller stocks overlooked by almost all mass market brokers and newspapers, UK-Microcap.com provides 20 new tips a year and frequent updates on the only class of stocks with true multibagger potential. To join UKMicrocap.com now for regular tips and updates, click here or call Georgina on 01624 641343 |
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