Spirent Communications Reports Mixed Full Year Results Amid Challenging Market Conditions
Why we think this is bad
While Spirent Communications has shown resilience in some areas, there are several concerning factors that suggest a negative outlook. The 3% decline in overall revenue, particularly the 9% drop in Lifecycle Service Assurance, is worrying. Despite a slight increase in adjusted operating profit, the reported operating profit saw a significant 44% decrease. The company's high valuation, with a P/E ratio of about 24.3 and share price near its 52-week high, suggests limited upside potential. The ongoing challenging market conditions, especially in the telecommunications sector, and the uncertainty surrounding the Keysight Technologies acquisition add to the negative sentiment. Although there are some positive aspects such as improved cash position and free cash flow, these are outweighed by the revenue decline, profit pressures, and uncertain market outlook.
Key Points
- Revenue down 3% to $460.2 million
- Adjusted operating profit up 2.2% to $46.2 million
- Reported operating profit down 44% to $10.3 million
- Adjusted basic EPS up 2.6% to 7.75 cents
- Cash increased to $141.8 million from $108.1 million
- Free cash flow improved to $54.3 million from $23.7 million
- Orderbook grew 6.3% to $312.1 million
- Challenging market conditions persist, especially in telecommunications sector
- Good momentum reported in the latter part of the year
- Acquisition by Keysight Technologies in progress
Summary
Spirent Communications plc reported mixed results for the full year 2024. Revenue decreased by 3% to $460.2 million, with Lifecycle Service Assurance down 9% but Networks & Security up 2%. Adjusted operating profit increased slightly to $46.2 million, while reported operating profit fell 44% to $10.3 million. The company maintained a strong cash position, with cash increasing to $141.8 million and free cash flow improving to $54.3 million. Despite challenging market conditions, particularly in the telecommunications sector, Spirent saw good momentum building in the second half of the year and reported a 6.3% growth in orderbook. The company's outlook remains cautious, citing ongoing market challenges, but management believes Spirent is well-positioned for 2025. Broker targets remain generally positive, with several 'Buy' and 'Overweight' recommendations.