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Spirent Communications cutting dead weight

The group is increasing its focus on the networks & security business
March 6, 2017

The wireless division has been the major source of trouble for Spirent Communications (SPT), due to strong competition and falling demand. Last year management said it expected a market contraction in device testing, combined with the end of a major contract with Verizon, to trim revenue by $30m (£24m) in 2016. In the end, revenue for the division fell by a more modest 14 per cent to $119m. Following a portfolio review of the group's lines of business, it has taken out an impairment of $69m against the wireless, device intelligence and developer tools business lines. This wiped out pre-tax profits.

IC TIP: Hold at 103.25p

Continued growth in ethernet revenues and operating profits blunted some of the impact. Operating profits for the dominant networks division grew 33 per cent. The group is now restructuring under three banners: networks and security, life cycle service assurance, and connected devices. The group paid out $4.8m for restructuring in 2016, and will pay out a further $2m-$3m in 2017, much of it severance costs. The group expects to save $13m a year as a result of the restructuring.

Liberum analysts were reviewing their forecasts at time of writing. They previously expected earnings before interest, taxation and amortisation of $49.2m for 2017, giving EPS of 5.8¢ (up from $46.5m and 5.3¢ in 2016).

SPIRENT COMMUNICATIONS (SPT)

ORD PRICE:103.3pMARKET VALUE:£632m
TOUCH:103.3-104p12-MONTH HIGH:107pLOW: 72p
DIVIDEND YIELD:3.1%PE RATIO:NA
NET ASSET VALUE:56¢*NET CASH:$96m

Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201247210812.13.22
2013414395.13.54
2014457243.43.89
2015477102.23.89
2016458-46-6.93.89
% change-4-579-418 

Ex-div: 9 May

Payment: 5 May

*Includes intangible assets of $170m, or 28¢ a share £1=$1.23