Spirent (SPT) 226.6p

Loss to date: 17.6%

We flagged the appeal of telecoms testing firm Spirent (SPT) at 275p on 12 January, seeing it as a smart way to play the rollout of 5G mobile network infrastructure. Sadly, a 20 January trading update materially undermined this hypothesis.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

Spirent provides testing, analytics and security services to the telecommunications space and it was a warning of hesitancy on the part of this customer base which really rocked sentiment towards the company and saw the shares drop more than 20% at one point, falling way below our entry point.

The Crawley-based business at least confirmed guidance for 2022 – with profit slightly ahead of the market consensus of $127 million – a 7.2% year-on-year increase. The order book was also up 7% in the year. However, delays are now expected to see a ‘heavier than usual’ second-half weighting for 2023.

Broker Canaccord Genuity painted a bleaker picture noting that the 9% organic growth in the first three quarters of 2022 creates a demanding comparison for the next nine months.

It adds: ‘Our analysis further indicates capex spend by Spirent’s largest customer group, the US service providers (20%-plus of sales), has peaked and will likely decline by a double-digit percentage over the next couple of years. Factoring in likely further operating/capital expenditure budget tightening among Spirent’s other customers, in our view, makes meaningful outperformance of 4% consensus revenue growth expectations less likely this year.’

WHAT SHOULD INVESTORS DO NOW?

If spending by Spirent’s largest customers on 5G has peaked for the time being, then a central part of our reason for recommending the shares has gone. In these circumstances it seems sensible to take our medicine (painful as it is) and walk away with 17.6% loss. Particularly as there appear limited catalysts in the short term which could get the share price moving again.

‹ Previous2023-01-26Next ›