A Winning Thesis Gets Stronger

When we first recommended MTI Wireless Edge back in January, the investment case centred on three long-term themes: rising defence spending, increasing investment in water infrastructure and the continued rollout of communications networks. Combined with a strong balance sheet and a management team that had quietly built a track record of consistent execution, we believed the shares offered an attractive opportunity despite operating in a frequently overlooked corner of the AIM market.

For that reason, we believe the time is right to add a second tranche to our existing position.

Defence Demand Is Accelerating

Perhaps the biggest development since our original recommendation has been the pace at which MTI’s defence business has accelerated.

During April alone, the company announced approximately US$9 million of new defence-related contracts. The largest included a US$2.2 million communications infrastructure contract for the Israeli Ministry of Defence, a US$1.9 million military antenna order from an international defence company, a further US$2 million antenna contract and additional defence orders across its MTI Summit business.

While the headline value of these contracts is impressive for a business generating annual revenues of just over US$50 million, what stands out even more is where the orders came from.

Every major contract announced was awarded by existing customers.

That matters because repeat orders are often the strongest indicator that a company is delivering products its customers genuinely value. Winning new business is encouraging. Winning increasingly larger orders from customers who already know your capabilities is often even more significant.

Management has also become noticeably more confident in its outlook. Following the April announcements, the company described demand for its defence products as stepping up, while the latest trading update referred to a record level of defence orders and confirmed that the majority are expected to be delivered during the current financial year.

With defence now representing almost half of group revenues, what was originally one of several growth drivers is increasingly becoming one of the company’s most powerful engines of expansion.

Three Growth Markets Working Together

One of the attractions of MTI has always been that it is not dependent on a single product or customer.

The business operates across three complementary divisions serving markets with attractive long-term structural drivers.

The antenna division continues to benefit from increased defence spending while also supplying equipment used in 5G backhaul networks. Although commercial 5G activity in India slowed during the first quarter, management remains confident that long-term investment in communications infrastructure continues unchanged.

Meanwhile, the Mottech water management division delivered an outstanding start to the year. First-quarter revenues increased by 19%, supported by particularly strong demand from North America, Italy and the Gulf region. Mottech’s smart irrigation and water control systems help customers reduce water consumption while improving agricultural productivity, positioning the business to benefit from growing global investment in water efficiency.

The third division, MTI Summit, also continues to strengthen. Revenue increased 20% during the first quarter as new business wins created what management described as a lengthy backlog extending well into the remainder of 2026.

Importantly, these three divisions are now complementing one another exactly as investors would hope. While antenna revenues experienced a temporary slowdown during the quarter due to lower commercial 5G sales in India, strength across water management and distribution more than compensated, allowing the group to continue growing revenues and profits.

That level of diversification provides a degree of resilience that remains relatively uncommon among smaller AIM companies.

Operational Momentum Continues

The financial performance continues to reinforce the improving operational picture.

During 2025, revenue increased 13% to a record US$51.5 million, while operating profit rose almost 29% to US$5.8 million. Earnings per share increased 17% to 5.83 US cents, with operating margins improving to more than 11%.

Cash generation remains one of the business’s greatest strengths. Operating cash flow increased sharply during the year, allowing MTI to finish with a net cash position of US$9.4 million despite continuing to invest across the business while maintaining its progressive dividend policy.

The momentum has carried directly into 2026.

First-quarter revenue increased 6% to US$12.8 million, operating profit rose 21% to US$1.5 million, while earnings per share climbed a further 18%. Although net cash eased modestly to US$8.5 million, this largely reflected exceptionally strong cash collection during the previous quarter rather than any deterioration in underlying trading.

Taken together, the numbers continue to demonstrate a business growing steadily without compromising profitability or balance sheet strength.

Quality Businesses Deserve Higher Ratings

Unlike many AIM companies, MTI has never relied on ambitious acquisitions, repeated equity placings or aggressive leverage to generate growth.

Instead, management has steadily compounded shareholder value through disciplined execution, conservative financial management and exposure to markets benefiting from long-term structural demand.

At around 16 times forward earnings, the shares are no longer the obvious bargain they appeared to be when we first recommended them earlier this year. However, quality businesses rarely remain statistically cheap once investors begin recognising their strengths.

What matters now is whether earnings continue growing quickly enough to justify that higher valuation.

Based on the improving order book, accelerating defence demand, continued strength across the water management division and another positive start to the year, we believe they can.

The Trend Reflects the Fundamentals

Technically, the shares continue to behave exactly as we would hope following our original recommendation.

Most importantly, the improving technical picture is now being supported by increasingly strong operational performance. In our experience, those tend to be the most durable trends.

For all of these reasons, we believe MTI Wireless Edge remains one of the highest-quality companies on AIM. The investment case we identified in January has not simply remained intact; it has strengthened. With management continuing to execute, cash generation remaining robust and multiple structural growth drivers supporting future earnings, we believe adding a second tranche remains an attractive opportunity for long-term investors.

Five Key Takeaways

1. Defence Momentum: Around US$9 million of defence contracts announced since April have significantly strengthened the order book for 2026 and 2027.

2. Diversified Growth: Defence, water management and communications infrastructure continue to provide multiple long-term growth drivers.

3. Strong Execution: Revenue, profits and earnings have continued to grow, with another solid first quarter extending the positive momentum into 2026.

4. Cash Rich: A net cash position of US$8.5 million provides financial flexibility while supporting continued dividend growth.

5. Second Tranche: The original investment case has strengthened over the past six months, making this an attractive opportunity to increase an existing position rather than simply chase share price momentum.