ELTK: Eltek reported strong 2nd quarter financial results which supports our price target of $11.00.
NASDAQ:ELTK
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Eltek Ltd. (NASDAQ:ELTK) reported strong 2nd quarter 2023 financial results on August 21st, 2023. Revenues increased 20.9% to $11.0 million from $9.1 million in the 1st quarter of 2022. As customers continue to move PCB manufacturing needs from Asian markets to Western markets, primarily for security considerations, the aerospace and defense markets continue to be one of the key drivers of revenue growth. In the 2nd quarter, approximately 57% of revenues were derived from Israel with North America as the second largest market generating 16.5% of total revenues.
Gross profit was $2.95 million (26.7% gross margin) compared to $1.7 million (18.5% gross margin) in the prior year period. Operating profit for the 2nd quarter of 2023 was $1.4 million compared to operating profit of $0.3 million in the 2nd quarter of 2022. Net income for the 2nd quarter of 2023 was $1.3 million or $0.22 per fully diluted share which was a substantial increase from net income of $0.75 million or $0.13 per fully diluted share in the prior year period. EBITDA for the 2nd quarter of 2023 was $1.7 million (15.3% EBITDA margin) compared to EBITDA of $0.8 million (8.7% EBITDA margin) in the 2nd quarter of 2022. A one-time expense of $350,000 is included in these results related to the rejection of a claim to the government to reduce a clean air penalty imposed on the company.
Operating cash flow for the 1st six months of 2023 was $2.9 million and with capital expenditures of $711,000, free cash flow in the 1st half of 2023 was $2.2 million. This free cash flow, along with $2.0 million in insurance proceeds received in the 2nd quarter, was primarily used to pay down debt totaling $3.35 million.
The company maintains a strong balance sheet with $8.3 million in cash and short-term investments and no bank debt as of June 30th, 2023. Inventories were $5.7 million at year end, an increase of 10.85% from the end of 2022. Net working capital was $14.6 million and shareholders equity was $23.3 million. In addition, the company has approximately $10.4 million in tax operating loss carryforwards to shield against future taxes. Backlog increased 10% during the quarter, the majority of which was related to higher margin Flex-Rigid PCBs.
CEO Eli Yaffe stated,"We are proud to announce our strong second quarter results for 2023, with a growth of 21% in sales compared to the same quarter last year. The second quarter is characterized by a relatively low number of working days due to holidays. Despite this, we managed to achieve $11 million in sales. Throughout the quarter, we continued to experience the demand for our high-end, high-reliability products. In light of the continued demand for our products, we continue our efforts to recruit employees and to procure and install new machines that will enable us to increase manufacturing capacity."
The company indicated they are still in the process of entering the U.S. markets through an acquisition of an existing manufacturing plant if the right deal can be found. In addition, the $15 million capital improvement plan is on track with the majority of purchase orders for new equipment planned to be operable in 2024 and 2025. Some equipment to improve capacity may occur in late 2023.
Due to the strong operating results in the 2nd quarter, we are raising our 2023 annual EPS estimate to $1.10 from $0.94. We also increase our 2024 revenue estimate to $46.6 million from $46.3 million. Our 2024 EPS estimate is $1.24.
We are maintaining our price target of $11.00. That price target, if achieved, would put the stock selling at roughly 8.8x our 2024 EPS estimate of $1.24. Based on the last closing price of $8.51, ELTK stock is currently selling at 7.7x our revised 2023 EPS estimate.
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