Filtronic: a UK success story cashing in on the space race

London’s Aim small-cap market is down 40% since mid 2021, but within that there has been a wide disparity of outcomes. Many 2021-vintage initial public offerings (IPOs) are down 80% or more. Yet one Aim-listed stock looks to have achieved escape velocity, having rocketed 28-fold since May 2021.

Interestingly, Filtronic (Aim: FTC) is not a start-up or even a recent IPO. The company’s history goes back to the 1970s, when it specialised in components for the defence industry before quickly adapting to benefit from the 1980s boom in mobile phones. The shares have been listed since the mid 1990s, but were demoted from the main market to Aim in 2015, following a difficult decade when the telecoms, media and technology bubble burst. Between 2000 and 2015 the shares fell from £7 to just 5p, a decline of more than 99%.

New opportunities for Filtronic

Filtronic’s products are a mix of transceivers, amplifiers and duplexers – components used to send and receive communication signals. It has three design sites in the north of England (Manchester, Leeds and Sedgefield), and an assembly and testing centre in the US. Last year, the firm was awarded the King’s Award for Enterprise in Innovation for its monolithic microwave integrated circuit, which is deployed across the world in 5G networks. The group’s equipment is also used in high-altitude platform systems (HAPS) for controlling drones and airships, though this is not a material driver of revenue.

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However, rather than terrestrial telecoms, space is a huge opportunity for shareholders today, according to Richard Staveley of the Rockwood Strategic investment trust, who bought into the company in May 2023 at around 12p per share.

Filtronic has been winning contracts to supply components for ground stations and is hoping to win new satellite customers as well as developing products for the satellites themselves. The company had net cash of roughly £12 million at the end of May, and he believes, a potentially very bright future as existing clients grow and the business achieves scale.

Filtronic contract wins

A series of key contract wins in recent years have sent sales soaring. In early 2023, management began to announce contracts with an unnamed leading global provider of low-earth orbit (LEO) satellites. LEO satellites (at an altitude of 1,200km) have significantly lower latency of 25ms-50ms for signals – 10 to 20 times faster than traditional geostationary satellites that sit at 36,000km.

They can use less-congested frequency bands that are otherwise unavailable to more distant geostationary satellites. Launches to LEO also require less fuel and smaller rockets compared with higher orbits, meaning they are more affordable and can be used more often. Unlike geostationary satellites, LEO satellites operate as constellations – large networks of hundreds of individual satellites orbiting the Earth in less than two hours, many times a day.

In September 2023, Filtronic also won a £3 million order with the European Space Agency. In April 2024, it won a £16 million contract and five year-partnership with Starlink. Revenues more than doubled to £56 million in the financial year ending May 2025, compared with the previous year.

In June, it announced its largest contract to date, with an order from SpaceX worth $32.5 million, which will be fulfilled in the year ending May 2026. Momentum has continued, with a £13 million order in the aerospace and defence sector announced in mid-July.

Filtronic shares attract attention

Under the strategic agreement with SpaceX, Filtronic issued warrants to allow SpaceX to buy up to 10% of its share capital once $60 million of orders had been placed by SpaceX. It’s unclear whether SpaceX will hold the shares or sell for an immediate profit, but the US company has not disclosed a stake, which suggests it has opted for the latter.

However, one US asset manager – Driehaus Capital – has announced a disclosable stake just above 3%. Even as UK active fund managers continued to suffer outflows, Aim success stories are attracting attention from overseas investors.

Filtronic’s shares are now trading on seven times May 2025 sales. This is not cheap, but it is far from the stratospheric valuations seen in unlisted space shares. SpaceX is conducting a funding round that reportedly values it at roughly $400 billion, which suggests a valuation of just under 30 times sales.

Filtronic is on a price/ earnings ratio of 55 times forecasts for the year ending May 2026, and a forecast enterprise value/Ebitda (earnings before interest, taxes, depreciation and amortisation) ratio of 21. Investors clearly expect significantly more growth to come. That may be right – management suggested at the first-half results that seven tonnes of satellites are expected to be launched every day over the next 10 years.

Still, there are risks. The top three customers accounted for 84% of revenue last year. Orders are likely to be lumpy. Cavendish – Filtronic’s house broker – is yet to publish forecasts for the year ending May 2027. Given the share-price performance, it’s possible that investors’ expectations have run ahead of themselves. So far though, Nat Edington, the chief executive who was appointed in May last year, has been able to execute. In any case, it’s refreshing to celebrate an Aim company on a rising trajectory, in a sector that looks like it will enjoy a stellar future.

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