Surging demand for high-speed wireless internet should be great for Spirent (SPT), which tests devices and equipment for carriers and network suppliers. Should, but wasn't in the first half: tepid trading and mounting costs drove adjusted operating profit down 71 per cent. Management also warned that full-year earnings would be well below forecasts. The group's shares slid 14 per cent on what amounted to a severe profit warning.
Spirent's selling and distribution costs leapt 19 per cent as acquisitions lifted overheads and the group embarked on sales and marketing drives to support new products. Total operating costs equated to 63 per cent of revenue - up from 45 per cent in 2009.
These cost pressures, together with fierce competition and consolidation in the smartphone market, meant adjusted operating profit more than halved in the key wireless division. Management rushed to make amends in June, which should lower annual costs by about $6m. Profits also plunged at the service assurance division due to weaker demand, investments and the timing of product shipments.
More positively, orders rose 6 per cent in the networks and applications division as mobile carriers tested and improved their infrastructure. Strong demand for higher-margin products also meant the division's gross margin widened by 2.2 percentage points to 69.5 per cent, sending operating profit up to $1.7m (£1.1m).
Broker Panmure Gordon slashed its pre-tax profit forecast by 28 per cent to $33m, giving EPS of 4¢ (from $45m and 6.8¢ in 2014).
| SPIRENT (SPT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 81p | MARKET VALUE: | £495m | |
| TOUCH: | 81-81.3p | 12-MONTH HIGH: | 110p | LOW: 66p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 86 | |
| NET ASSET VALUE: | 68¢* | NET CASH: | $97m | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2014 | 221 | 13.9 | 1.7 | 1.68 |
| 2015 | 219 | -2.3 | -0.2 | 1.68 |
| % change | -1 | - | - | - |
Ex-div: 13 Aug Payment: 11 Sep *Includes intangible assets of $262m, or 43¢ a share £1=$1.56 | ||||
