In early 2020 Filtronic’s management refocused the business on market niches where the company’s expertise in designing and manufacturing high performance radio-frequency (RF) components and sub-systems operating at frequencies up to 180GHz can command a premium.
Having doubled the RF manufacturing capacity in FY20, management’s strategy, led by new CEO Richard Gibbs, is to broaden the customer base and product range. Generating higher revenues from the same cost base should deliver improved EBITDA margin.
Comparing Filtronic’s multiples with RF specialist peers, we note it is trading broadly in line with the mean on both prospective EV/sales and EV/EBITDA. This is reasonable in our opinion because our estimates predict the group’s FY21 EBITDA margin will be at a small discount to the mean. Given the current underutilisation of manufacturing capacity, we see scope for successful execution of management’s sales initiative to deliver revenue growth and improvement in EBITDA margin during FY22, potentially driving an uplift in the share price.