We're posting up notes from the recent Sohn London investment conference. Next up is Benoit Colas of PrimeStone Capital who presented a long of Spirent Communications (LON:SPT)
Benoit Colas's Presentation at Sohn London Conference
PrimeStone have been invested in Spirent for 3 years. Spirent is a
fairly complex business that designs, manufactures and tests solutions
for communications equipment across a wide range of technologies. It
operates in three divisions: Network and Security - helps Nokia and
Cisco test equipment; Connected Devices - tests mobile devices for Apple
and Samsung; Lifecycle Service Assurance – helps Telecom Korea.
Despite
being a London listed company, it creates 90% of its sales in the US
and Asia Pacific. Sales have been stable for the last 10 years. Gross
margin has crept up from 65% to 72% over the same period. PrimeStone was
attracted by the high EBIT margin of over 20% which lasted until 2013
when they fell below 10% and then rebounded a bit. PrimeStone invested
in Spirent with the belief that they could get the EBIT margin back
above 20%.The company enjoys a strong and stable global market share and
long-lasting relationships with customers. PrimeStone are pulling
levers to bring about change at Spirent.
- There
is scope for cost reduction. In 2015, PrimeStone convinced management
that they did not need to spend more on product R&D to keep up with
competitors.
- The balance sheet is strong and
offers potential. The company has over $100m of cash and PrimeStone have
been pushing for this money to be either distributed to shareholders or
spent on share buybacks. If there was a $100m buyback the company would
remain debt free.
- There is potential to refocus
the business on the most attractive parts. The weaker businesses like
Connected Devices should be sold off.
Spirent trades at
a discount to its US peers. Colas’ thinks the main reason for the
discount is the depressed EBIT margin. As they work to get the margin
back above 20% the stock price will rise.
Be sure to check out the rest of the presentations from the Sohn London investment conference.
Thursday, January 10, 2019
Benoit Colas Long Spirent Communications: Sohn London Conference
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