- Annual pre-tax profit up 12 per cent to $4.8mn
- EPS rises 9 per cent to 4.58¢
- Net cash of $8.1mn (9.2¢)
The latest results from Israel-based MTI Wireless Edge (MWE:40p) highlighted the benefits of diversification as growth from the technology group's antennae and water management systems units more than mitigated a weaker performance from its electronics division.
The antennae business sells 'off the shelf' flat and parabolic antennas as well as custom-developed antenna solutions to a range of commercial and military customers. Buoyed by a sharp rise in military sales, divisional operating profit surged from $0.3mn to $0.8mn. Current events around the world suggest that requirements for military equipment will continue to grow in the coming years as western governments increase their defence budgets, too. Moreover, the conflict in the Middle East has triggered an increase in demand that should lead to higher stock levels of all military equipment being maintained by the Israeli government going forward. Defence-related work now accounts for 44 per cent of group sales.
Strength from the military side of the business more than offset a slight dip in revenue from MTI’s 5G backhaul antenna solutions due to slower installation rates in certain markets. However, as soon as 5G is rolled out in India (a key market), the requirement for MTI's products will be substantial. Also, the group’s automatic beam steering antenna solution that adapts to any small movements caused by different climate conditions is now entering into production after successful testing by key original equipment manufacturers (OEMs).
A climate change winner
MTI offers investors exposure to the themes of climate change and water conservation through wireless water management systems, too. Water scarcity is a real global problem. Last year, the UN Water Conference reported that global fresh water demand will outstrip supply by 40 per cent by 2030. This level of challenge underlines the importance of water conservation and the solutions that MTI offers customers (agriculture, municipal authorities and commercial entities), which can reduce water usage by 30 per cent.
In addition, MTI has been expanding its services beyond efficient water usage across public parkland and green open spaces, having recently completed a project to monitor and partially control 40 urban fountains for a municipality in Israel. It could become a valuable future revenue stream for a division that increased operating profit by 8 per cent to $2mn last year.
Admittedly, contract delays at two loss-making projects led to profits reversing at MTI’s electronics division. However, the directors report that increased defence spending by governments is creating a strong market environment to operate in, partially from the Israeli defence forces and partially from international markets. To this end, MTI’s electronics division has been completing several design wins for both new and existing customers. It augurs well for future sales. House broker Shore Capital expects divisional operating profit to bounce back 25 per cent to $1.95mn in 2024 and contribute to 9 per cent higher group operating profit of $5.1mn (£4mn).
On this basis, MTI is rated on seven times 2024 operating profit to enterprise valuation of £28.4mn. A 6.1 per cent dividend yield and a £0.5mn expansion of the share buy-back programme are also supportive. Trading around the level of my last buy call (‘MTI boosted by defence spending and offers 6% yield’, 15 August 2023), MTI’s shares rate a buy.
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