Full-year results from the Human Screen

Solid State is managing the tricky transition from recovery to growth rather well, and the Human Screen, who profited handsomely from the recovery is watching with interest.

Highlights

• Adjusted operating profit up 17.5%
• Adjusted return on tangible assets: 13%
• Adjusted net profit of ''1.2m compared to net cash flow of -''27,898 (-''280,185m after net capital expenditure)
• Net debt including approximate capitalised lease obligations of ''1.7m up 50% at ''4.1m (the company has no defined benefit pension scheme), 33% of tangible assets
• Per-share dividend up 21%
• Shares in issue up 10% due to the exercise of share options by management.

The Human Screen comments:

Solid State is a former turnaround that has blossomed into a potential growth company. In 1996, when the company joined AIM, it was a distributor of electronic components. The turnaround began in 2002, when Solid State diversified into manufacturing by acquiring Steatite, which has become an umbrella brand for a growing manufacturing division that in 2012 brought in 75% of turnover and a slightly bigger proportion of pre-tax profit.

Steatite manufactures batteries, notebook computers, and embedded systems for use in harsh industrial, military, or natural environments. It’s diminished distribution business, Solid State Supplies, is growing again too, trading in semiconductors and related components, often with military and aerospace applications.

The Human Screen thinks Solid State is a potential stalwart, or growth company, but notes its relatively brief record as a manufacturer and the dilution of shareholders as management exercise share options. Cash flow has deteriorated this year, although that may in part be explained by a contract agreed with a supplier just before the year end, which required funding.

Although he’s fond of SSP because, as a turnaround stock, it made his Thrifty 30 portfolio a good profit, it’s not obviously cheap. It’s unlevered post-tax earnings yield is 6%.

More on Solid State

LON:SSP

HS+ (worth watching for improvement in fundamentals/price)