Laird wired for growth

Laird's business is divided into two divisions: performance materials and wireless, which respectively account for 65 per cent and 35 per cent of sales. To really understand Laird's growth prospects, it's necessary to look at the end markets which these divisions serve.

For example, Laird's casings, which are designed to protect consumer electrical devices from electromagnetic interference and heat, are essential components in high-tech smartphones, wearable devices and tablets. Such gadgetry accounts for an ever larger slice of the $1 trillion (£65bn) global consumer electronics market. And growth is expected to receive a boost in the next few years as smartwatches and other innovative wearables are unleashed, while smartphones continue to be snapped up.

Likewise, super fast broadband is something the world is embracing, and Laird's products, including powerful antennas, are in hot demand here too. All telecom companies have invested heavily in this latest step in broadband technology, which continues to line Laird's pockets. Then there's the nascent 'internet of things' phenomenon that's driving demand for automated connectivity in a number of rapidly expanding markets. In medicine, for example, Laird's wi-fi technology is becoming a regular sight in equipment such as infusion pumps, because it enables hospitals to pre-program devices ahead of patients arriving.

The car industry is another big focal point for this type of technology. Auto research and development spending is up 50 per cent over the past 10 years, mostly due to growing demand for more electrical content in cars. Here Laird's sleek shark-fin antennas provide drivers not only with all their entertainment needs, but also with comfort features such as seat air conditioning. Given the strong growth in car sales and shifting consumer demand, the company, which serves the three big US carmakers and supports 50 per cent of VW and Audi's telematic needs, has found itself at the centre of yet another market that's moving at full throttle.

Over recent years, the company has sought to exploit these favourable trends with a strategy aimed at leading the market rather than chasing it. This has involved a ramp-up in investment in product innovation. For example, last year 24 new performance materials products and applications were launched. The strategy has also helped to diversify Laird's customer base, which is important given the company's historic reliance on US computer giant Apple. While Apple does still account for 18 per cent of revenues, last year the number of customers that accounted for over $25m of sales increased from five to six and the number worth over $1m rose from 70 to 79.

Investment has also led to the spread of factories into new fast-growing regions. During 2014, Laird moved to better sites in the US and China, opened a new a facility in Vietnam and added a design centre in South Korea. Those developments have moved it into new regions while helping to broaden the customer base and improve efficiency. On this last point, the benefits of new facilities could be seen in an increase in operating margins from 12.5 per cent to 12.6 per cent in 2014. Analysts believe profitability should continue to improve, helped by Laird offering more "value-added" services and more effective marketing strategies.

The downside of Laird's investment in growth is that net debt climbed from £109.5m to £159.5m last year, while free cash flow did not cover dividend payments. However, free cash flow should improve from here despite plans for continued high levels of investment, and management is committed to a progressive dividend policy, although the dividend growth rate is expected to slow.