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Substantial recovery could be on the cards at reshaped electronics expert
Thursday 08 Feb 2018 Author: Steven Frazer

The breathless sell-off in share prices earlier this week is a good reminder not to be over-exposed to stocks with high valuations. With that in mind, we’ve spotted an interesting stock on an undemanding valuation and one with a potential re-rating catalyst on the horizon.

Laird (LRD) is a global technology company, designing and manufacturing complex engineered components that facilitate and protect mobile communication systems and connected solutions.

It is an increasingly big supplier to new cars which are becoming wired for the internet like never before. Car technology is one of its big growth opportunities alongside 5G extra superfast mobile communication and internet of things applications.

Its shares are trading on 11.2 times forecast earnings per share for 2018. That rating falls to 9.9-times based on 2019’s forecast earnings. It also has a 3.4% prospective yield for 2018 with scope for rapid dividend growth.


The share price has more than halved over the past 18 months after the company got itself into a terrible state. Poor operational management, an overly-complex structure and too much exposure to mobile phone markets were to blame.

But the big fix is taking shape now that its balance sheet has been repaired, as evidenced by an impressive trading update in October 2017. Third quarter results showed almost everything rising – revenue, profit, operating margins and forecasts – except the share price.

Checks and balances put in place by a shaken-up management team means near-term growth may be more considered, but also more reliable.

For example, where once it earned about 30% of revenue from Apple, the Cupertino giant’s contribution has been reduced to around 15% – still large but more manageable.


There is now real scope for rapid recovery and the market has been slow to pick up on this point. We believe this will shine through when 2017 full year results are unveiled, pencilled in for 1 March.

This trade is not without risks. Laird remains a big Apple supplier, not always a comfortable position to be in, while visibility in some of its other end markets is not great. There is also ongoing execution risk to the recovery plan.

Yet these factors look overly discounted in the current share price with little value given to outperformance. Its peer group trades on a rough forward price-to-earnings multiple of 17-plus, according to Reuters.

That implies considerable scope for Laird to enjoy a higher rating once it can convince the market that its turnaround is in full effect. (SF)


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