By Thomas Kerr, CFA
READ THE FULL ELTK RESEARCH REPORT
On Might 15, 2024, Eltek (NASDAQ:ELTK) introduced monetary outcomes for the first quarter of 2024 which have been largely in step with expectations. Revenues for the first quarter have been $11.8 million in comparison with $11.5 million within the 1st quarter of 2023. Gross revenue for the primary quarter was $3.3 million (28% gross margin) in comparison with $3.0 million (26% gross margin) within the prior 12 months interval.
Working revenue for the first quarter of 2024 was $1.7 million in comparison with $1.6 million within the 1st quarter of 2023. Web revenue for the quarter was $1.7 million or $0.27 per absolutely diluted share in comparison with web revenue of $1.6 million or $0.27 per absolutely diluted share within the prior 12 months interval.
EBITDA for the first quarter of 2024 was $2.1 million (18% EBITDA margin) in comparison with EBITDA of $1.9 million (17% EBITDA margin) within the 1st quarter of 2023. Working money stream was $1.3 million and capital expenditures have been $2.7 million as the corporate continued to execute on its Accelerated Funding Plan.
Money and short-term financial institution deposits have been $19.9 million as of March 31, 2024 and the corporate has no excellent debt. Working capital on the finish of the first quarter was $25.6 million. Money balances have been boosted by an fairness providing in February 2024 which raised $10.0 million in gross proceeds.
Enterprise Replace
➢ The corporate indicated it has seen a constant uptrend in each product orders and requests for quotations throughout the quarter. Not too long ago, the corporate secured a repeat order price $1.6 million from a protection shopper for PCB provide. $1.0 million of this order is due by the tip of 2024 and the rest by the tip of 2025.
➢ The corporate anticipates sustained excessive demand within the protection sector for the subsequent 2-3 years as a consequence of ongoing geopolitical conflicts world wide.
➢ Eltek talked about that manufacturing constraints are largely as a consequence of workforce shortages and never in bodily capability at its crops. To handle the elevated calls for for PCBs, the corporate is actively in search of to spice up its workforce by 15% within the brief time period and a further 10% after that.
➢ The corporate talked about it anticipates vital challenges because it undertakes in depth development work and integrates extra new manufacturing strains and machines. The main target is on guaranteeing the environment friendly set up of recent tools whereas sustaining full manufacturing capability on current strains. Regardless of a slight delay of a number of months within the funding program, progress stays regular with the profitable set up of the primary of three ordered coating strains throughout the quarter.
➢ The corporate indicated it continues to hunt an appropriate PCB manufacturing firm to amass within the U.S. market to boost its presence in North America. Additionally, the corporate is exploring extra choices for increasing manufacturing at its plant in Israel to assist its development technique.
Progress Drivers
The corporate attributes its success to a multi-pronged strategy:
➢ Innovation: The persistent pursuit of innovation has allowed the corporate to remain on the forefront of technological developments, assembly the evolving wants of its protection, aerospace, and medical clients.
➢ Buyer Focus: Constructing robust, long-lasting relationships with its clients has been a cornerstone of their success. Understanding the distinctive challenges confronted by the protection, aerospace, and medical sectors, and their tailor-made options have contributed to clients’ success.
➢ Operational Effectivity: Eltek continues to spend money on state-of-the-art manufacturing processes and high quality management measures, guaranteeing the manufacturing of dependable and high-performance PCBs.
Market Traits and Outlook
The PCB trade is experiencing principally optimistic dynamic shifts that are pushed by developments in expertise and evolving market calls for. As Eltek primarily operates within the protection, aerospace and medical sectors, the corporate is well-positioned to capitalize on the next market developments:
➢ Growing Demand for Superior Electronics: The protection and aerospace
industries are witnessing a rising want for classy digital parts which drives the demand for high-performance PCBs.
➢ Emphasis on Reliability and High quality: With important purposes in protection, aerospace, and medical units – reliability and high quality are important. Eltek has constantly delivered PCB options that meet the stringent requirements of those industries.
➢ International Provide Chain Challenges: The trade has confronted challenges associated to the worldwide provide chain. Eltek has proactively managed these challenges by means of strategic partnerships and diversified sourcing, guaranteeing minimal impression on general operations.
The corporate has diversified its income base by exploring alternatives exterior of the normal protection and medical units market. For instance, Eltek is concentrated on strengthening collaboration and securing substantial orders for brand spanking new merchandise with a number one buyer whose equipment and expertise play an important function within the large-scale manufacturing of semiconductor chips.
The corporate is making progress with its $15.0 million Accelerated Funding Program. Clients have financed a portion of this plan which requires tools and services to extend manufacturing capability. Capital spending could attain $10 million in 2024 as the corporate executes on this program. The corporate indicated that there may very well be potential delays as certified engineers and important staff are tough to supply at instances.
The continued scenario in Israel, coupled with the continuous rise in protection budgets throughout European nations and the commerce pressure between the US and China, proceed to affect the demand for the corporate’s high-end PCB merchandise.
As well as, the corporate talked about that because of the safety challenges in Israel and the logistical problems with shipments getting into the nation and the arrival of the provider technical group to the nation, there could also be potential delays in executing the accelerated funding program. A number of the tools to be carried out in this system come from areas exterior of Israel and sure suppliers are reluctant to ship engineering and set up groups to Israel right now.
The corporate continues to actively pursue the acquisition of a PCB manufacturing firm within the U.S. Recognizing the strategic significance of the U.S. market, Eltek anticipates substantial development within the coming years. The underlying motivation behind the CHIPS and Science Act and the Defending Circuit Boards and Substrates Act is to repatriate microelectronics and PCB manufacturing to America which is able to foster elevated demand for home PCB manufacturing.
$10 Million Public Providing
On February 15, 2024, the corporate introduced the closing of its beforehand introduced public providing of 625,000 peculiar shares at a public providing value of $16.00 per share. Gross proceeds have been $10,000,000, earlier than deducting underwriting reductions and providing bills. There have been no dilutive warrants related to this providing.
The corporate intends to make use of the online proceeds from this providing to strategically spend money on the growth of its manufacturing capabilities and for normal company functions together with working capital.
Valuation and Estimates
Regardless of the potential capability enchancment delays talked about above, the rising market demand persists, and is anticipated that this pattern will proceed in upcoming years. The corporate indicated that the affect of the present battle in Israel has not been absolutely manifested within the firm’s backlog but. Nonetheless, the optimistic impression of elevated home protection spending is more likely to materialize within the second half of 2024.
We alter our EPS to account for potential capability enchancment delays, extra administration commentary, and the next share rely. Our 2024 annual income estimate is now $50.5 million and our EPS estimate is now $1.09. We’re sustaining our value goal of $18.00. That value goal, if achieved, would put the inventory promoting at roughly 16.5x our 2024 EPS estimate of $1.09.
The worldwide marketplace for flex-rigid PCBs is anticipated to develop at a CAGR of roughly 10% and attain $7.5 billion by 2025. We count on the corporate’s revenues to develop at stable double-digit charges for no less than the subsequent 5 years. We count on gross margins to steadily improve to twenty-eight% over the subsequent 2-3 years. EBITDA margins might improve from 16.0% in 2023 to twenty.0% in coming years relying on gross margins and ranges of SG&A spending going ahead.
Our major valuation instrument makes use of a Discounted Money Move course of. Beneath the situation described above, our DCF based mostly valuation goal is roughly $18.00 per share. Our goal value could also be conservative because it doesn’t account for any M&A transactions that may materially improve the corporate’s manufacturing capability.
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