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Spirent stabilises

RESULTS: Spirent Communications is looking to use its large cash pile to make earnings-enhancing acquisitions and up dividends
February 27, 2014

Phew. These results from Spirent Communications (SPT) were bad, but no worse than the telecoms and wireless-testing provider had already flagged. In fact, management says the business stabilised in the second half of 2013, following weak trading over the preceding 18 months.

IC TIP: Buy at 109p

A periodic lull in new wireless-technology launches had been exacerbated by adverse macro-economic conditions in Europe, increasing competition in the data-centre market and cautious spending by Chinese customers earlier in 2013. But new chief executive officer Eric Hutchinson expects Spirent to achieve “high single-digit organic growth” in 2014, as long as China and the Americas continue to recover and Europe doesn’t deteriorate.

He also plans to put Spirent’s large cash pile to good use. The company already announced the $37m (£22m) acquisition of North America’s DAX Technologies after the year-end. That leaves another $180m or so that could be used for further bolt-on acquisitions, or else returned to investors. In this time of so-called secular stagnation, broker Panmure Gordon suggests cash-rich Spirent could decide, like Micro Focus International (MCRO), Fidessa (FDSA) and Sage (SGE) before it, to dramatically boost shareholder returns by paying out large special dividends.

Panmure expects a modest recovery in adjusted EPS to 5.78p in 2014 and 7.75p in 2015, from 5.54p in 2013.

SPIRENT COMMUNICATIONS (SPT)

ORD PRICE:109pMARKET VALUE:£ 667m
TOUCH:108-109p12-MONTH HIGH:166pLOW: 81p
DIVIDEND YIELD:1.9%PE RATIO:36
NET ASSET VALUE:74¢*NET CASH:$216m

Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20094278513.71.93
201048211211.82.50
201147111413.22.93
2012 (restated)47210812.13.22
2013414395.13.54
% change-12-64-58+10

Ex-div: 05 Mar

Payment: 25 Apr

*Includes intangible assets of $199m, or 32¢ a share

£1=$1.67