Solid State surges after electronic tagging win

A week after we said keep an eye on Solid State, the maker of hardwearing computers and electronic kit has been picked to supply the Ministry of Justice (MoJ) with monitoring hardware for GPS offender tagging. It's certainly gone down well in the City, and the share price is up 9%.

AIM-listed Solid expects to have thrashed out final contract terms by 26 July and its core division Steatite should begin deliveries by year-end. Subsequent deliveries will be based on a minimum contract award over three years. Of course, that means the impact will be minimal in the current financial year to March 2015, but the opportunity could be "substantial" after that, says house broker WH Ireland, which has put its forecasts under review.

"We expect a material increase in the share price short term and retain a buy recommendation," says WH Ireland analyst Eric Burns who upgraded forecasts only last week.

Then, Mr Marsh told Interactive Investor that new government initiatives could be "potentially transformational." He was referring to Whitehall's commitment to put 25% of its spending through small-to-medium-sized enterprises (SMEs), and not just the military.

Last year, Solid made £2.15 million, giving adjusted earnings per share (EPS) of 25.3p, helped by a few acquisitions. And the order book is up 42% to £14.7 million, with the backlog spread across a range of businesses, including secure communications and LED lighting.

Top line growth is certainly expected to accelerate. A £3.5 million export deal at lower margins flattered the 2013 numbers, capping this year's increase in revenue at 2%. Mr Marsh said secure communications is growing well, driven by demand for systems on warships, hand-held devices and antennas.

And organic growth is supplemented by sensible, earnings-enhancing acquisitions. Solid State has become quite adept at it, and Q-Par, the high-tech antennae business it bought last year, has beaten expectations. More acquisitions are likely, admits Mr Marsh.

Prior to Tuesday's update, WH Ireland expected adjusted EPS of 28.6p, rising to 30.4p for the year after.

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