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Spirent expects a better second half

The group had previously guided to a better second half, thanks to seasonal weighting and other accelerating factors
August 3, 2018

Spirent (SPT) has already indicated that the second half of 2018 would be stronger than the first. This expectation stemmed from the group’s typical seasonal weighting, along with the probability of higher customer spending on its VisionWorks (network and customer analytics) products later in the year, and an anticipated ramp-up in 400G Ethernet testing.

IC TIP: Buy at 112p

In the event, first-half revenues were essentially flat. But, the order intake from continuing businesses rose 6 per cent to $206m – buoyed by strong momentum within lifecycle services assurance. Indeed, this segment – which constitutes 23 per cent of group sales, and which houses the VisionWorks platform – enjoyed a 36.4 per cent improvement in order intake to $41.6m. Revenues here grew 6.9 per cent to $48m, underpinned by strong sales of VisionWorks.

Elsewhere, networks and security – comprising 60 per cent of sales – saw order intake rise 3.3 per cent to $129m. But, revenues fell slightly, and the gross margin declined from 71.7 per cent to 70.6 per cent. Somewhat reassuringly, this was driven partly by a move towards subscription-based revenue streams, shifting some profitable business into future periods. While the division’s work with ZTE – a Chinese network equipment manufacturer – was also restricted by US/ China trade issues, the relevant embargo has since been lifted, helping support Spirent’s unchanged full-year expectations.

Liberum expects adjusted EPS of 9.1ȼ for 2018, against 7.5ȼ in 2017.

SPIRENT (SPT)   
ORD PRICE:112pMARKET VALUE:£686m
TOUCH:112-113p12-MONTH HIGH:127pLOW: 87p
DIVIDEND YIELD:2.8%PE RATIO:28
NET ASSET VALUE:54ȼ*NET CASH:$95.4m
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
201721414.41.91.68
201820917.42.41.76
% change-2+21+29+5
Ex-div:9 Aug   
Payment:7 Sep   
*Includes intangible assets of $161m, or 26ȼ a share. £1 = $1.31