MIDAS SHARE TIPS: Put spark in your portfolio with Solid State

Ocado, GCHQ, the London Underground and Swedish defence group Saab would seem to have little in common. But they are all customers of specialist electronics firm, Solid State. Based in Redditch, near Birmingham, the group focuses on components and computer systems that can function in harsh and inhospitable environments.

Robots in Ocado’s chilled warehouses use Solid State’s kit, as do military drones, Tube trains and electric vehicles. The group works with numerous businesses in the UK, it has a growing presence in the US and is moving into Europe too.

Solid State was founded in 1971 by Gordon Comben, a semi-conductor expert even then. Three years later, he was joined by Bill Marsh and the following decade Marsh persuaded his son Gary to join the firm. At the time, there were 20 employees, working out of a cricket ball factory in Tunbridge Wells, Kent. Now Marsh junior is chief executive, the company employs around 400 people and operates from 14 sites across the UK and America.

Having listed on AIM in 1996, Solid State has grown steadily both organically and through acquisition, increasing dividends consistently ever since. Today, Marsh and finance director Peter James are resolutely focused more than ever on growth. Back in 2018, the duo said they wanted to double group earnings in five years. That ambition was exceeded in 2022 and a new target has been set – to deliver total shareholder returns – combining share price and dividend growth – of more than 20 per cent every year between now and 2030.

While stock market movements are unpredictable, Marsh and James are optimistic that they can achieve their goals and Solid State shares, now £12.60, should move higher in response. The duo have made a good start, unveiling record results last week for the year to March 31.

Powerhouse: Solid State’s electronics are used by fast-growing businesses including electric car makers and defence giants

Sales rose 48 per cent to £126.5 million, profits climbed 50 per cent to £10.8 million and the order book was 30 per cent ahead at £116 million. Dividends were just 3 per cent higher at 20p a share, not because Marsh lacks confidence in the future but because he is eyeing up some interesting acquisitions and wants to keep cash in the bank to pay for them.

Since floating, Solid State has bought 13 businesses but Marsh and James are extremely fussy about potential deals.

Last summer saw the group’s largest acquisition to date, California-based Custom Power. While Solid State has been dealing with American businesses for years, this was the group’s first US headquartered deal and Marsh looked at 47 possible plans before nailing down terms with Custom Power, a battery and energy specialist.

America is ripe with opportunity, not least following President Biden’s Inflation Reduction Act, which promotes renewable energy and electric vehicles. Marsh is keen to take advantage of this legislation and there are attractive deals to be done in Europe too, particularly Germany and the Netherlands.

Solid State is known for providing quality and service – and it operates in industries that are more resilient than most, such as healthcare and defence. The group also benefits from the worldwide trend towards electrification, from robots in factories to automatic sensors in cars.

Products include imaging technology for hospitals, sophisticated radios for army use and battery packs. Solid State even makes computer screens that allow train drivers to see the tracks and platforms as they pull into a station, currently on order from Transport for London as part of a much-needed upgrade of Underground lines.

Brokers expect sales of £147 million and profits of almost £12 million in the year to next March, with further growth pencilled in for 2025 and dividends rising along the way.

Marsh is also proud of Solid State’s family heritage, looking after staff in an almost paternal fashion, which encourages employees to stick with the business.

Midas verdict: Solid State shares have risen over the years but, at £12.60, there is plenty of room for further rewards. Marsh and James are a strong team, the business is well regarded and the push overseas is already delivering results. Buy.

Traded on: AIM Ticker: SOLI Contact: solidstateplc.com or 01527 830 666

This post first appeared on Dailymail.co.uk