A substantial profit warning (19 Oct) from electronics and high performance materials firm Laird (LRD) leaves the shares at their lowest levels in more than five years. This will come as no surprise to regular Shares readers, but is also raises the potential for a recovery play.

Laird warned in its third quarter trading update that underlying profit before tax for the full year to 31 December 2016 will now come in at about £50m. That’s about 30% below the £71m the market had pencilled in, according to consensus forecasts. The market’s response was to slash the share price almost in half, from 308p to 159.7p.

Pressure has emerged in the supply chain for Apple (AAPL:NDQ) where volumes, pricing and margins appear to be well short of expectations despite anecdotal evidence suggesting solid end demand for iPhone7. This may suggest that Laird’s structural position within Apple has changed, ‘most likely due to stronger competition,’ says Nick James, analyst at broker Numis Securities.

CEO Tony Quinlan’s challenge is to reshape the business to meet its current and future opportunities in new markets, including substantial scope to cut costs.

Some level of restructuring looks inevitable and that could cap investor enthusiasm in the short-term. But this looks a recovery opportunity if management action is fast and effective, though the risks are high.

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