Solid State (SOLI) , the specialist component supplier and manufacturer of computing, power, and communications products, announced a trading update for the 6 months ended September 20 2023 (H1 2023).
Solid State reported strong H1 performance with revenues up 35% on a constant currency basis to £88m from £59.4m last year. Adjusted profit before tax increased by 67% year-on-year to £7.0m. Strong cash generation resulted in settlement of deferred consideration relating to previous acquisitions, and paying down the company's debt.
The strong revenue growth was driven by the delivery of £23m of product under initial and follow-on security and defence contracts, plus the full period of contribution from Custom Power. USD currency headwinds were slightly more than £1m at a revenue level. Solid State's open order book at the end of September remained healthy at £99.7m with c.60% expected to be delivered in the current financial year.
As a result of the strong start to the year, management now expects to deliver better than expected revenue growth on a full-year basis. This means Solid State expects to be marginally ahead of current consensus revenue and adjusted PBT expectations for the year ending 31 March 2024.
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A positive H1 trading update from Solid State with material increases in revenue and pre-tax profits, resulting in improved guidance for the full year. Markets reacted accordingly, driving SOLI shares 6.9% higher on Monday.
The company continues to deliver on its growth strategy, driven by strong demand from clients in the security and defence sectors as well as a full contribution from Custom Power. Shorter component lead times and higher interest rates continue to shorten customer ordering patterns, however. At the same time, shorter lead times are resulting in a more efficient book-to-bill conversion.
Broker Cavendish upgraded its FY24 expected EPS by 5.3% to 85.4p and target price in-line with EPS to 1620p. The shares are currently attractively rated on a FY25E PE of 13.0x, an 18% discount to the discounted cash flow valuation with plenty of upside as potential M&A opportunities accelerate growth.
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