Spirent Communications Plc

Spirent Communications Plc (SPT) is a Technology Hardware & Equipment company providing security, analytics, assurance and testing solutions to virtual and physical service provider networks and enterprise data centres. The company, with the help of leading innovators provide faster, better and secure communication.

The company will announce its full-year results on 5^th March 2020.

Q3 Trading Update
On 8th November 2019, Spirent Communications announced its trading update for the third quarter from 1st July to 30th September 2019. The company’s full year expectations remained unchanged. The company achieved solid performance for the period, driven by higher-speed Ethernet testing and 5G. The company also witnessed growth in order intake for the period.

Financial Highlights – H1 Financial Year 2019 (30^th June 2019, $, million)
 
(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the company’s order intake surged by 7 per cent to $219.5 million as against $205.6 million in H1 FY2018. The revenue in H1 FY2019 was up by 4 per cent to $217.4 million versus $209.2 million in H1 FY2018. The company’s adjusted operating profit stood at $20.7 million in H1 FY2019 versus $17.8 million in H1 FY2018, an increase of 16 per cent for the period. The reported operating profit in H1 FY2019 surged by 24 per cent to $18.1 million from $14.6 million in H1 FY2018. The reported PBT (Profit before tax) in H1 FY2019 surged by 7 per cent to $18.7 million from $17.4 million in H1 FY2018. The adjusted basic earnings per share stood at 3.03 cents in H1 FY2019 as against 2.49 cents in H1 FY2018, an increase of 22 per cent. The reported basic earnings per share surged by 14 per cent to 2.72 cents in H1 FY2019 from 2.38 cents in H1 FY2018. The interim dividend surged by 10 per cent from 1.76 cents in H1 FY2018 to 1.94 cents in H1 FY2019.

Share Price Performance

Daily Chart as at 11^th November 2019, before the market closed (Source: Thomson Reuters)

On November 11^th, 2019,  Spirent Communications Plc shares were trading at GBX 209.00 at the time of writing before the market close (at 11:53 AM GMT), up by 0.97 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 211.50/GBX 110.80.

Valuation Methodology

 *Peers: IQE Plc, Telit Communications Plc, IMImobile Plc, Filtronic Plc and Paypoint Plc.

Conclusion
The company had shown growth in the financial performance for the first half of the financial year 2019. Both the top-line and the bottom-line performance have improved for the period.

As a provider of IT security products, the Group is highly prone to cyber-attack target. The group’s infrastructure, services and products may be targeted by attacks specifically designed to disrupt the group’s business and harm the Group’s reputation.

The software industry outlook stays uncertain, mainly in the United Kingdom and in the United States. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. The company is facing emerging headwinds and cost pressures. The company achieved solid performance for the period, driven by higher-speed Ethernet testing and 5G. The company also witnessed growth in order intake for the period.

Based on the above factors and supported by valuation done using the above method, we have given a “Watch” recommendation at the current price of GBX 211.50 (as on 11^th November 2019, before the market close at 10:35 AM GMT) with support from few catalysts needs to be evaluated at a later stage.

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