Spirent Communications Plc – Resilient Performance and Decent Technology Drivers

Spirent Communications Plc (LON: SPT) is a FTSE 250-listed technology solutions provider. It provides information solutions for high-speed Ethernet and network infrastructure markets.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 6 August 2020, the Company provided an interim result for the six months ended 30 June 2020, with resilient performance in COVID-19 environment. The total order intake surged by 6% year-on-year to US$232.1 million in H1 FY20 (H1 FY19: US$219.5 million). The Group reported revenue of US$233.7 million in H1 FY20, which increased by 7% year-on-year from US$217.4 million in H1 FY19. The revenue was supported by the strong development of 400G Ethernet test solutions and 5G orders. In H1 FY20, the Group reported an adjusted operating profit and reported profit before tax of US$39.5 million and US$36.0 million, respectively. The Company declared the interim dividend per share of 2.17 cents. As on 30 June 2020, the Group had cash of US$221.4 million. The Company delayed some of the discretionary expense, and it has moved it to H2FY20. During the reported period, the Group signed more than 250 deals related to 5G services. It collaborated with Rakuten Mobile of Japan and China Telecom for 5G network equipment.

Share Price Performance


1-Year Chart as on 12 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Spirent Communications Plc’s shares were trading at GBX 296.00 on 12 August 2020 (before the market close at 9:00 AM GMT+1), down by 1.66% against the last day closing price. Stock 52 week High and Low were GBX 309.50 and GBX 146.81, respectively.

From the technical standpoint, 14-day RSI is currently moving towards the overbought zone, which means there is a potential for a short-term correction in the stock price.

Key Risks

Business Operations are exposed to current market dynamics and trade embargo uncertainties. Excessive dependence on one or two customers could affect the revenue stream of the Company. The Company’s operations may get a hit due to the ongoing covid-19 pandemic crisis.

Conclusion

The business activity started to recover from June 2020. The Group stays confident about the operational delivery and liquidity headroom. The Company’s business performance was upbeat in Q1 FY20; however, it was impacted due to the pandemic in Q2 FY20. The Group expects the business performance to be resilient in H2 FY20. The Group is confident and optimistic about the 5G solution and expects the demand to grow. The telecom companies have lost the 3G and 4G wars in terms of revenue, they will have a new playing field when 5G technology rolls out. Moreover, the Company is trading near a 52-week high, raising doubts at the upside potential at current prices.

Therefore, based on the above rationale, we have given a “Watch” stance on Spirent Communications at the current price of GBX 296 (as on 12 August 2020, before the market closed at 9:00 AM GMT+1), while we look for the higher investment in the 5G network in the near term.

Airtel Africa Plc – Decent Start to the Year, Despite the COVID-19 Pandemic

London Stock Exchange-traded Airtel Africa Plc (LON: AAF) is a provider of telecommunication and mobile money services, with a footprint in 14 African countries, primarily in East Africa, Central Africa and West Africa.

Recent News

On 5 August 2020, the Group stated that Airtel Networks Kenya Limited (the Group’s subsidiary), and Telkom Kenya Limited had entered into an Agreement (on 8 February 2020 to combine their businesses in Kenya). This agreement will create an integrated telecommunications platform with mobile, enterprise, and wholesale divisions. However, the Transaction has gone through a very lengthy process which has led the parties to reconsider their stance. The two businesses are no longer pursuing completion of the Transaction.

Q1 FY21 Trading Update (for the quarter ended 30 June 2020, as on 24 July 2020)

(Source: Company Website)

In the first quarter of 2021, the reported revenue increased by 6.9% year-on-year to US$851 million, with a growth of 13% on constant currency basis. The revenue growth was mainly driven by the growth of the customer base (increased by 11.8% year-on-year to 111.5 million) and ARPU (average revenue per user) growth of 1.6% in constant currency. It has also recorded growth in all key business segments. Underlying EBITDA for Q1 FY21 increased by 7.9% year-on-year to US$375 million, driven by revenue growth and efficiency in operating expenses. The reported underlying EBITDA margin increased by 40bps year-on-year to 44.1% in Q1 FY21. In Q1 FY21, the free cash flow increased by 53.5% year-on-year to US$96 million, mainly driven by the higher underlying EBITDA, lower capex, and reduced interest payments. At the end of June 2020, the net debt decreased by US$656 million year-on-year to US$3,425 million (June 2019: US$4,081 million), due to an increase in cash of US$680 million from the IPO proceeds and US$122 million proceeds from the cancellation of derivatives.

Share Price Performance


1-Year Chart as on 12 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Airtel Africa Plc’s shares were trading at GBX 59 on 12 August 2020 (before the market close at 9:05 AM GMT+1), down by 1.67 % against the last day closing price. Stock 52 week High and Low were GBX 82.45 and GBX 25.74, respectively.
From the technical standpoint, the shares were trading slightly below the support level of 50-day simple moving average prices, which reflects a downward trend in the stock.

Key Risks

The Company operates in an increasingly competitive environment across the markets and segments, particularly with respect to pricing and market share. The novel COVID-19 pandemic has paralysed the global economy, causing massive disruptions in the movement of people and the global supply chain. A slowdown in the growth of telecommunications and mobile money services could adversely affect the demand for communication sites and tower space.

Valuation Methodology



Conclusion

During these unprecedented circumstances, the Group witnessed a resilient performance with all key business segments (voice, data, and mobile money) and all regions. Also, it created an exciting partnership with UNICEF (United Nations Children's Fund) in Q1 FY21. However, the outlook stays uncertain, due to the second wave of infections and the actions governments would decide to take in that event. Moreover, the Company faces pressure on pricing and margins due to the mature and highly competitive markets it operates in, and material adverse changes in certain raw material prices could affect the profitability of the Group. Presently, the Company is trading near a 52-week mid, raising doubts at the upside potential at current prices.

Therefore, based on the above rationale, we have given a “Watch” stance on Airtel Africa at the current price of GBX 59.00 (as on 12 August 2020, before the market close at 9:05 AM GMT+1), while we look for investment opportunities for growth in the core businesses during the near term.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.