Filtronic PLC

Filtronic PLC (LSE: FTC) is an FTSE AIM 100 index listed Company that develops and manufactures radio frequency (RF), microwave and millimeter wave (mmWave) technologies. The Company's products transmit, receive, and condition radio signals, particularly at microwave and mmWave frequencies. This Report covers the Key Recommendation Rationale, Conclusion, and Recommendation on the stock.

Key Recommendation Rationale – Sell at GBX 114.00

• Resistance near Current levels: FTC’s stock price crossed the Resistance (R2) which was stated in the previous report on 03 April 2025 therefore, there can be a possibility of a decline in resistance levels. Considering the market conditions and the price action, it is prudent to exit the stock.

• Weak cash conversion despite sharp profit growth: While profit for the period surged to £6.7 mn from a loss of £0.5 mn in H1 FY2024, cash generated from operations rose only modestly to £2.1 mn (vs. £1.8 mn YoY). This reflects a subdued cash conversion rate and suggests profits are not fully translating into cash inflows.

• Net cash position remained largely flat: The Group’s net cash excluding lease liabilities dipped slightly to £5.1 mn (from £5.2 mn), and including leases improved marginally to £4.3 mn (from £4.2 mn). This indicates limited liquidity enhancement despite strong reported profitability and a healthy revenue rise.

• Overhead cost base increased by 62%: To support its growth ambitions, Filtronic increased its overheads significantly, which rose by 62% year-on-year. While necessary for scaling, this rise in fixed costs may compress margins if top-line momentum slows or demand plateaus.

• Macroeconomic Risk: The market sentiments can remain weak in the short term due to the subdued consumer disposable income, geopolitical tensions, and political risks.

Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

Conclusion

FTC is expected to trade at a discount due to weak cash conversion despite sharp profit growth, a largely flat net cash position, a 62% rise in overhead costs, significant build-up in receivables impacting working capital, investment outflows exceeding operating cash inflows across H1 FY25, and ongoing structural cost burdens including policy disadvantages and elevated inflation.  For conducting the valuation, the following peers have been considered: MTI Wireless Edge Ltd. (LSE: MWE), Touchstar PLC (LSE: TST), etc.

Given its current trading levels, the recent financial performance, strategic investments and partnerships, market expansion and cost optimization strategies, relative valuation, and associated risks, it is prudent to exit the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the Closing Market Price of GBX 114.00 as of 07 May 2025. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 07 May 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.