The continual drip, drip of companies being taken over or delisted from the London Stock Exchange, and the lack of a pipeline to replace them, is making it increasingly challenging to find exciting, undervalued opportunities there. That means it’s even more critical for investors to act quickly and with conviction when opportunities arise.
Filtronic (Aim: FTC) is one such opportunity. It is a UK-based designer and manufacturer of high-performance radio-frequency microwave and millimetre-wave components and subsystems for the aerospace industry. Over the past decade, it has carved out a world-leading niche in this corner of the market, and today it’s reaping the benefits.
Filtronic’s change in fortune
Historically, Filtronic’s three main areas of activity have been mobile telecommunications infrastructure, defence and aerospace, and public safety. Orders from these sectors provided a steady stream of revenue, but the firm struggled to grow and to differentiate itself in a highly competitive industry. Revenue stagnated, as did the shares. After Filtronic moved from the main market to Aim in 2015, the stock rarely traded above 10p per share.
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The outlook started to change in 2021 when European countries began raising defence spending in response to Russian aggression. The firm also started to attract interest from the space sector, as companies such as Elon Musk’s SpaceX began to deploy satellite constellations in increasing numbers. SpaceX and other sector trailblazers have turned to low-Earth orbit (LEO) satellite constellations to achieve global coverage at a fraction of the cost of traditional geostationary orbital satellites (GEO). LEO constellations comprise thousands of smaller satellites, which can be launched in large groups, mass-produced, and use each other to improve range. SpaceX began launching its Starlink LEO constellation in 2019, and so far it’s put more than 7,000 into orbit. As many as 55,000 LEO satellites could be launched in the coming years.
Filtronic announced its first series of contracts to supply LEO satellite communications equipment in 2023. One agreement was with the European Space Agency, worth a total of £3.2 million, to develop multi-frequency transceiver technology for satellite payload feeder links. The series of smaller contracts helped the company gain an edge in the market while reinvesting cash in research and development. These investments culminated in a transformational long-term partnership agreement with SpaceX in April 2024.
Filtronic linking arms with Elon Musk
SpaceX has tied Filtronic into a deal to get its hands on the company’s E-band solid state power amplifiers. These devices help ground stations communicate with SpaceX’s Starlink constellations and, as a result, are crucial to the operation.
Under the terms of the agreement, Filtronic issued warrants to SpaceX, allowing the latter to subscribe for up to 10% of the business with a five-year vesting period. The warrants vested in two equal tranches based on the volume of orders – the first after $37 million in orders and the second on the balance up to a total of $60 million. SpaceX also laid out plans for the next generation of these devices. The second tranche of warrants is tied to the further development of the technology.
In Filtronic’s 2024 financial year, revenue rose 56.3%, and earnings before interest, tax, depreciation and amortisation (Ebitda) jumped 280%. In the first half of the company’s 2025 financial year, revenue rose by 202%, primarily driven by the SpaceX contract. Following two years of expansion, analysts at Cavendish had expected revenue to fall in fiscal 2026 as the first phase of the contract with SpaceX ended. Cavendish pencilled in revenue of £48.4 million in fiscal 2025, falling to £41 million in fiscal 2026. It expected growth to re-accelerate in fiscal 2027 as the second phase of the SpaceX contract started to pay off. But on 10 February, Filtronic surprised the market by announcing it had won a new contract with SpaceX valued at $20.9 million (£16.8 million) to be fulfilled in 2025 and 2026.
Filtronic reaches for the stars
This deal was yet another sign of how transformational the SpaceX agreements have been and how management has deployed the cash to drive further growth. Filtronic has invested heavily to meet the demands of its substantial contracts with SpaceX, and it continues to do so. The company’s capital spending totalled £2.1 million in the first half of the year and is expected to come in at around £2.4 million in the second half of the year. Even after this growth, Cavendish had Filtronic ending the year with £10.4 million in net cash, up 100% year on year. Thanks to the bespoke proprietary nature of its technology, its Ebitda margin was 19.2% in 2024 and expected to hit 28.3% in 2025.
Filtronic’s exposure to one primary customer is risky, but it is winning clients, leveraging its experience working with SpaceX to access other parts of the LEO market. Profit generated from the deal is also funding significant research and development to drive growth in other markets. Based on the company’s latest deal, the stock is trading at a forward price/ earnings (p/e) ratio of around 20 on a fully diluted basis after stripping out cash. Even though the stock has risen in value ten times since 2021, its current value isn’t too demanding, considering its market proposition and product base.
The company is also a prime acquisition target. Compared to other SpaceX suppliers in the network communications arena, such as Taiwan-based Wistron NeWeb Corp, Filtronic is a minnow and could become an incredibly attractive bolt-on acquisition.
(Image credit: Aim)
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.