If profit warnings really do come in threes it's going to be a tough old few months for Anite (AIE). The telecoms and IT testing specialist faces challenges every bit as rigorous as the examinations it puts clients' mobile phones and connectivity kit through. Today's profits alert is a hefty blow. The hoped-for pick-up in workloads has failed to materialise and, having taken on the extra fixed costs of its Propsim acquisition in January, has created a perfect storm.


Just like in August, orders are moving to the right. But now, unlike then, the significance of this is far more damaging in the short-term, meaning a likely 25% slump in half-year handset testing revenues compared to a year ago, implying about £30 million. Worth nearly 60% of company-wide revenue this time last year and, according to finnCap analyst Lorne Daniel, 73% of earnings before interest, tax, depreciation and amortisation (EBITDA), the shortfall's significance is all too clear, handset testing profits in the first half will be all but wiped out, and investors are selling hard, the shares collapsing over 32% at the time of writing to 76p, a two-year low.


ANITE - Comparison Line Chart (Rebased to first)


Partly to blame is the ongoing industry bashing that several big mobile device manufacturing customers are facing - Blackberry (BBRY:NDQ), Nokia (NOK1V:FH), HTC (2498:TT) - all struggling to combat the increasingly dominant forces of Apple (AAPL:NDQ) and Samsung (005930:KS), not to mention the rising army of Chinese makers flooding the market with cheap and cheerful smartphones.


Management believes (fingers crossed) that the market backcloth will improve in the coming months. It is also encouraging that its network testing and travel industry software sides are trundling along nicely. Worth noting is that analysts are far from despondent. Lorne Daniel at finnCap continues to see medium and long-term value in the stock, saying 'we still feel the stock deserves a premium for the long-term growth opportunity and will recover rapidly from a short-term issue.' Analysts at Panmure Gordon and Canaccord remain similarly sanguine on Anite's future, the latter adding 'today’s news is clearly disappointing, but we are confident that the conditions that Anite is experiencing are no different to those that its competitors will be feeling and therefore do not believe that it implies any market share loss.'


Cutting to the chase, Canaccord adds that 'we still believe that Anite is well positioned to capitalise on the medium term drivers in wireless testing, principally the roll-out of 4G networks and increasing complexity of chipsets and handsets.' Bruised yes. Battered, yes, but don't count Anite out.

Issue Date: 16 Oct 2013