The Investment Column: Filtronic
Tuesday 03 August 1999
THE METEOROIC rise in Filtronic's shares has been driven by the belief that the markets for mobile-phone components and the infrastructure that receives and processes mobile-phone signals are certain to grow. Doubts have now set in. The shares fell 20 per cent yesterday to 656.5p as Filtronic warned first-half sales of its mobile infrastructure in the US would be delayed. The company insisted this was a timing issue; it is still expecting the same revenues over the current year. So is a 20 per cent fall justified?
By pushing back the expected arrival of the US revenues, Filtronic has made the expected bonanza look more risky. Investors had been looking forward to Filtronic reaping the benefits of the take-up of new CDMA mobile technology. But its US customers, principally Lucent, are dragging their feet. Larger economic issues - the Asia and Latin American economic crises - are to blame.
Meanwhile, there are worries surrounding the investment needed at the Newton Aycliffe plant Filtronic proposes to convert to produce components for mobile handsets. That couldgreatly boost the higher-margin components division's contribution to group sales, currently just 20 per cent - infrastructure, by contrast, is 65 per cent.
The upside, like the risks, is huge. When CDMA takes off, Filtronic is primed to benefit. Newton can churn out 350 million chips a year. House brokers WestLB Panmure expect pre-tax profits to be just pounds 10m this year, but pounds 53m next. On a forward price-earnings ratio of 12 in 2001, the shares look cheap. Filtronic looks riskier than it was, but the rewards could be tremendous. Buy.
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