Berenberg starts Filtronic at 'buy'

(Sharecast News) - Berenberg initiated coverage on shares of Filtronic on Thursday with a 'buy' rating and 196p price target.

Filtronic designs and manufactures components and subsystems for radio frequency (RF) communication networks.

"We view Filtronic as a unique stock offering investors exposure to the booming space industry alongside an accelerating European defence market," the bank said.

Berenberg noted that Filtronic has established a strong competitive position in the highly specialised niche in which it operates and said "the proof is in the pudding".

"It holds sovereign accreditation and strategic relationships with multiple blue-chip space and defence contractors, including SpaceX and multiple defence primes," it said. "Filtronic's products are critical to the end-goals of these customers and it has undertaken significant recent investment in facilities and personnel, which could lead to more than �200m of potential revenue."

Berenberg highlighted "significant" upside potential. It pointed out that Filtronic issued nine outlook upgrades in FY24 alone, following the announcements of large contracts.

It said that with its large end market demand and the "slightly lumpy" nature of contract order flow, there is potential for material outlook upside, even from a single contract announcement.

"In addition, the short-term order book is well covered; we believe that the FY26 order book is circa 90% and FY27's is circa 60% covered," Berenberg said.

"Our FY26 order book estimates also indicate increasing diversification of the revenue mix with a greater contribution from defence."

Berenberg added that the shares have fallen by around 23% in the last three months, presenting an attractive entry point "for this high-growth story".

At 0920 BST, the shares were up 3.7% at 133.25p.