From the look of its regal offices on London’s Pall Mall you’d never guess at Laird’s (LRD) beginnings as a Birkenhead-based ironworks.

The company also has one of the more colourful stock market stories, a 193-year history that takes in ship building, railway carriages, car parts, security products and now, high performance electronics.

Today Laird is a global technology company, designing and manufacturing complex engineered components that facilitate and protect mobile communications systems and connected solutions. It is split into three core divisions; Performance Materials, Connected Vehicle Solutions and Wireless and Thermal.

It makes those slick-looking shark fin antennas on BMWs, for example.

Developments such as increasingly connected cars, 5G extra superfast mobile communications, internet of things applications – these are some of the existing and emerging demand drivers for Laird kit and expertise.

Back on track

Recent trading has been very encouraging. A third quarter trading update at the end of October showed a 19% year-on-year jump in July to September revenue to £245m. The increase was 16% when currency oscillations are stripped out.

That’s a 12% underlying improvement year to date over 2016.

Investors were particularly chuffed to hear management say they now expect pre-tax profit is leaning towards the top of the £60m to £65m forecast range. The consensus had averaged out at £63.3m, the statement helpfully spelled out.

Such growth marks a very welcome turnaround for Laird after a hellish year. In October 2016 the company put out a monstrous profit warning that saw the share price halve from its previous 237p level. Being forced to scrap its second half dividend and go cap in hand to shareholders for £185m to repair its balance sheet didn’t help.

Chief executive Tony Quinlan, who took over the top job in September 2016, admits the management team became too focused on top line growth, and lost sight of the basic business. Quinlan also accepts that some of the management team ‘weren’t up to it.’

This is illustrated by the company’s failure to spot weakening smartphone volumes, something Shares readers were forewarned on four months in advance of Laird’s warning.

Laird cannot confirm Apple as a major customer, the Cupertino tech giant is notoriously strict with suppliers, but Apple is widely understood in the City to have been worth up to an estimated 30% of Laird’s business in the past. It’s now about 15%
of revenue.

Laird had simply become too complex, Quinlan admits, with seven separate businesses. That had to change, and it has, now streamlined into three distinct parts.

Laird's big fix

The strategy ahead can be summed up as wider, deeper and more unique. In other words, Laird aims to identify new markets and geographies, leverage its highly skilled development engineers to drive product differentiation, and widen its product and service moats versus competition.

So far, so good and Quinlan says he is ‘delighted’ at how quickly he and his team have been able to effect change. He hopes to be able to prove to all stakeholders (customers, staff and investors) that ‘we’re pretty good at running this business.’

In 2018 analysts forecast around £73m to £74m pre-tax profit from a little more than £950m of revenue.

So almost everything is rising (revenue, profit, operating margins, forecasts) except the the share price. Tony Quinlan admits his disappointment regarding the market’s reaction so far, but he’s also long-in-the-tooth enough to accept that share prices respond in their own good time.

It leaves the stock, at the current 136.25p, trading on a 2018 price to earnings (PE) multiple of 12.9 times. Reuters reckons Laird’s peer group PE equivalent is 16. Presume a re-rating, to say, 15-times over the next 12 months and investors could easily be looking at a share price in the 185p-190p range.

A rapid recovery in the dividend, should Laird improve cash flow, could help provide a re-rating catalyst. This year’s 3.4p anticipated payout is widely expected to rise to 5.4p per share in 2018. That’s still a far cry from previous 10p levels, but it implies a very decent 3.9% dividend yield next year.

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