Little technology company Filtronic (FTC) has become the latest prey to the visibility monster, the shares crashing by 22% to 38p after a issuing a damaging profit warning. The shares had traded as high as 69p in September 2013.


The Leeds-based company makes microwave kit for mobile and broadband infrastructure companies but the 4G, next generation of mobile communications workload is proving worryingly elusive.


'The wireless business is facing a sharp, but temporary, fall in activity for the remainder of the financial year,' the company spells out in a trading update.


'A number of potentially large projects, where Filtronic Wireless has been approved as a supplier, have been deferred beyond the end of the group's financial year end.


'The last few months have seen a realignment of the various operators in several key markets for 4G/LTE (long-term evolution), either involving the financial consolidation of the participants or swapping of spectrum between competing networks.  This has led frequently to revisions and delays in the roll-out of infrastructure projects.

FILTRONIC - Comparison Line Chart (Rebased to first)

The sell-off could have been much worse but some investors are clearly willing to hope that many of the delayed projects won't disappear entirely and will show up in 2015.


Management expects to largely secure this deferred business next year, to end May 2015, but admits that the degree and timing of Filtronic’s participation remains uncertain. This strongly suggests that, despite the hope of improved visibility offered by increasing exposure to the commoditised end of the filter market, a shifting operator landscape still generates a high degree of earnings risk.


'Against this background we make substantial downgrades to our full-year 2014 forecasts,' explains George O'Connor, Panmure Gordon's respected technology analyst. He's slashed year to May 2014 wireless revenues from £30 million to £22.5 million while operating profits halve to £2.7 million. But O'Connor retains hope that next year will be better, saying that he's happy to hold 2015 estimates for the time being. He's betting that management’s conviction that the pipeline is sufficiently stuffed to support wireless unit revenues of £41 million next year taking the total to £50 million when O'Connor's £9 million of broadband kit estimate is added in.


Yet even as Filtronic's house broker Panmure cannot quite bring itself to continue telling clients to buy the shares, the future is just too difficult to predict right now.


The broker's recommendation shunts to a fence-sitting 'hold' while the share price target that was 84p has been slashed to 54p. Filtronic must now pull out all the stops to ensure that any future surprises are on the plus side.

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Issue Date: 31 Mar 2014