SHARED TIPS FROM MIDAS: Spark up your portfolio with Solid State, whose electronic components are used by electric car makers and defense giants.
Ocado, GCHQ, the London Underground and the Swedish defense group Saab seem to have little in common. But they are all clients of the firm specialized in electronics Solid State. Based in Redditch, near Birmingham, the group focuses on computer components and systems that can function in harsh and inhospitable environments.
The robots in Ocado’s refrigerated warehouses use the solid-state kit, as do military drones, subway trains and electric vehicles. The group works with numerous companies in the UK, has a growing presence in the US and is also moving into Europe.
solid state was founded in 1971 by Gordon Comben, an expert in semiconductors even then. Three years later, Bill Marsh joined him, and over the next decade, Marsh persuaded his son Gary to join the company. At the time, there were 20 employees working at a cricket ball factory in Tunbridge Wells, Kent. Now Marsh junior is chief executive, the company employs around 400 people and operates from 14 sites in the UK and US.
Having listed on AIM in 1996, Solid State has grown steadily both organically and through acquisition, increasing dividends steadily ever since. Today, Marsh and CFO Peter James are more focused than ever on growth. In 2018, the duo said they wanted to double the group’s profits in five years. That ambition was exceeded in 2022 and a new goal has been set: to generate total shareholder returns, combining share price and dividend growth, of more than 20 percent each year from now until 2030.
While stock market movements are unpredictable, Marsh and James are optimistic they can achieve their goals and Solid State shares, now at £12.60, should rise in response. The duo got off to a strong start, revealing record results last week for the year to March 31.
Powerhouse – Solid-state electronics are used by fast-growing companies, including electric car manufacturers and defense giants.
Sales were up 48 per cent to £126.5m, profits were up 50 per cent to £10.8m and order books were 30 per cent higher at £116m. Dividends were only 3 per cent higher at 20 pence a share, not because Marsh lacks confidence in the future, but because he is considering some interesting acquisitions and wants to keep cash in the bank to pay for them.
Since going public, Solid State has bought 13 businesses, but Marsh and James are extremely picky about potential deals.
Last summer saw the group’s largest acquisition to date, California-based Custom Power. While Solid State has been dealing with US companies for years, this was the US-based group’s first deal, and Marsh discussed 47 potential plans before finalizing terms with Custom Power, a battery and power specialist.
The United States is full of opportunities, especially after President Biden’s Inflation Reduction Act, which promotes renewable energy and electric vehicles. Marsh wants to take advantage of this legislation, and there is also attractive business to be done in Europe, particularly Germany and the Netherlands.
Solid State is known for quality and service, operating in industries that are more resilient than most, like healthcare and defense. The group also benefits from the global trend towards electrification, from robots in factories to automatic sensors in cars.
Products include imaging technology for hospitals, sophisticated radios for military use, and battery packs. Solid State even makes computer screens that allow train drivers to see the tracks and platforms as they enter a station, currently at the request of Transport for London as part of a much-needed upgrade to the underground lines.
The brokers are expecting sales of £147m and profits of nearly £12m in the year to next March, with further growth forecast for 2025 and increased dividends on the way.
Marsh also takes pride in the Solid State family heritage, caring for the staff in an almost fatherly way, which encourages employees to stay in business.
Midas Verdict: Solid State shares have risen over the years but, at £12.60, there’s plenty of room for more rewards. Marsh and James are a strong team, the business is well regarded and the push abroad is already paying off. Buy.
Traded in: AIM Heart: SOLÍ Contact: solidstateplc.com or 01527 830 666