Filtronic (LSE:FTC) is a UK development inventory that’s seen its share price enhance by 184%, since February 2024.

The corporate develops and producers radio frequency, microwave and millimetre wave applied sciences, that are deployed in mission-critical communications networks. Considerably, in April 2024, it entered right into a strategic partnership with Area Exploration Applied sciences (SpaceX) for the continuing provide of its modern strong state energy amplifiers.

By mid-morning at the moment (10 February), Filtronic’s inventory had soared 14%, after it introduced one other deal — value £16.8m over the subsequent two years — with Elon Musk’s firm. On disclosing the order, the corporate mentioned it’ll exceed present market expectations for each income and revenue in its subsequent two monetary years.

Not surprisingly, buyers had been impressed.

The information added roughly £28m to the market cap of the corporate.

Reaching for the celebrities?

For these buyers trying to profit from the renewed curiosity in area, there are comparatively few choices.

SpaceX is privately owned and though an IPO’s anticipated in some unspecified time in the future, the timing’s unsure.

A variety of funding companies have stakes in Musk’s firm. For instance, at 31 December 2024, it was the most important holding within the Scottish Mortgage Funding Belief portfolio. Its place was valued at £1.1bn, and accounted for 7.5% of whole belongings.

However Filtronic has publicity to extra than simply the area market. Its merchandise are additionally offered into the aerospace and defence sectors.  

Nonetheless, there are some dangers.

Potential points

Regardless of the latest rally in its share price, it’s nonetheless comparatively small. With a market cap of £226m, it doesn’t have the monetary firepower to face up to a chronic downturn.

Having mentioned that, at 30 November 2024, its stability sheet didn’t include any debt. And it had money of £7.2m, though this wouldn’t be sufficient to cowl a yr’s employees prices.

I’m additionally involved that it’s closely reliant on simply three clients. Through the yr ended 31 Might 2024 (FY24), these contributed 84% of income. Though not disclosed in its accounts, I don’t assume it’s arduous to work out what the most important one is. It accounted for 48% of income in FY24. With at the moment’s press release, I think this focus is prone to enhance additional.

What’s it value?

However valuing an organization like Filtronic could be tough. Because it’s rising quick, buyers usually tend to pay a premium.

Previous to at the moment’s announcement, Edison Group was anticipating the agency’s earnings per share (EPS), for FY26 to be 2.93p. The inventory was, subsequently, buying and selling on a weighty ahead a number of of 31.7.

Based mostly on its working margin for the primary half of FY25 (26%), the brand new contract might add £2.2m to Filtronic’s backside line in every of its subsequent two monetary years. By my calculations, this is able to add 1p to EPS. Due to this fact, even with the 14% enhance within the share price, the price-to-earnings (P/E) ratio has dropped to a extra engaging 27.

Nonetheless, I’m not going to spend money on the corporate.

Its reliance on SpaceX is a double-edged sword. So long as the buying and selling relationship continues, I feel the corporate’s share price will do effectively. But when it had been to lose the contract, I think it’s shares will tank as there are comparatively few different clients within the sector that would change the income. It is a danger that I’m not ready to take.