Interactive Investor

Insider: this finance chief’s partner has spotted an opportunity 

23rd November 2020 09:04

Graeme Evans from interactive investor

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After a strong rally, these shares have dropped back, but a director's partner thinks the selling is overdone.

A pause in the stock market rebound at 5G-inspired Spirent Communications (LSE:SPT) has been followed by a sizeable purchase of shares from within the former FTSE 100 index company.

The partner of finance director Paula Bell bought £128,500 worth of shares on Thursday at a price of 257p, days after the stock fell 11% on the back of a third-quarter update.

The FTSE 250 stock was recently above 300p for the first time since the dotcom crash, having doubled in just over a year. Investors expect that the company's testing and assurance work is well placed for a new generation of technologies, including 5G and autonomous vehicles.

Numis Securities believes markets overreacted to the absence of incremental upgrades in the update, adding that the stock looked to be a “great buying opportunity”. The broker, which has a 300p target price, added: “The company has good growth prospects and is well managed.

“Even if we have slightly underestimated the exceptional hit from the Covid-19 crisis in 2020, we continue to believe the risk to our forecasts for 2021 and beyond is on the upside.”

Spirent's update showed continued strong demand for its network lab test solutions as the telecoms industry prepares for standalone 5G and the “future data tsunami”. While some customers have delayed 5G product launches recently, Spirent's connected devices division continues to win orders relating to the faster, lower latency wireless technology.

In networks and security, demand for Spirent's high-speed Ethernet products has also grown as it supports customers in developing their 5G infrastructure, particularly in Asia Pacific. The only downside for the division has been a relatively slow rebound in US activity for its Positioning business providing satellite accuracy testing for military equipment such as drones.

CEO Eric Updyke said short-term lumpiness in some order placement was offset by the benefits of a diverse portfolio of work. “Overall, we are on track to show full year progress in 2020 with, as in previous years, trading performance weighted to the second half of the year and to the final quarter.”

Liberum believes the weakness in Positioning is temporary, with demand from US government agencies and contractors likely to have been affected by Covid-19 and the US election.

The broker left its forecasts unchanged and said the recent share price weakness was an attractive buying opportunity given that longer-term fundamentals are becoming much stronger. It has a price target of 310p and notes that price/earnings multiples of 22.5x and 20.1x for next year and 2022 are below the company's historical trading range.

Investec Securities is more cautious and said the feel of the recent trading update was one of a decelerating momentum after a hot start in Q1. The broker, which has a target price of 180p, added: “Shares may now come under pressure as Q4 shifts the focus to reality as oppose to 5G theorizing.”

Spirent’s back story

The company dates back to 1936, starting life as Croydon-based Bowthorpe Electric. However, it is best known for its rapid ascent into the FTSE 100 index during the dotcom era, when shares peaked at more than 1,000p in February 2000.

With its focus on becoming a world leading communications testing and service assurance business, the company changed its name to Spirent from Bowthorpe and secured a listing on the New York Stock Exchange in 2001.

The dotcom crash sent shares as low 15.5p, prompting the company to embark on a painful restructuring involving the divestment of non-core operations. Its three remaining operating segments now serve more than 1,100 customers in over 50 countries.

Halfords new man takes a stake  

The accelerating Halfords (LSE:HFD) share price was no barrier to new board member Tom Singer buying shares on Friday, with the former InterContinental Hotels Group (LSE:IHG) and BUPA finance director acquiring £53,000 worth of stock.

His purchase came in the week that Halfords said the cycling boom seen during the pandemic was showing no sign of slowing, having already helped half-year profits to double £56 million in the 26 weeks to 2 October. Like-for-like sales were up 6.7% in the period.

The profit performance is particularly remarkable when set against the most optimistic of three scenarios given by the company in July for full-year underlying profits of between £10 million and £20 million. It made a surplus of £55.9 million in the year to April.

Shares have jumped from 65p in March to trade at 259.5p on Friday night, the highest level since the end of 2018. Singer, who bought his shares at 268p, joined the Halfords board in September.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    UK shares
    Consumer goods and services
    Technology
    Infrastructure

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