The market is having to adjust to life heavy in the delayed deals and contract near-misses. Spirent (SPT) is the latest to succumb to blockages in the pipeline, telling investors that first quarter expectations should be torn-up and tossed away. The calculators of City analysts must be getting one hell of a bashing with numbers needing to be re-worked.


The telecoms equipment suppliers' woes are broadly-based but it is the wireline infrastructure cabling arm that bears the brunt, to nobody's surprise. As recently as February, alongside its 2012 results, the company was waving red flags. 'The difficult economic conditions that characterised market dynamics in the second half of 2012 are unlikely to change markedly during the first half of 2013,' it spelled out. You can hardly accuse Spirent management of not being clear.


What this means is that revenues for the three months to end March of $96.8 million (£63.5 million) are over 17.5% down on the $117.4 million (£77 million) chalked up a year ago, and remain a long way short of even lowered consensus expectations of $109.3 million (£71.7 million), according to Investec data. This is 'not universally unexpected, but still a very poor quarter,' Investec's James Goodman and Julian Yates sum-up.


This looks very much like original equipment manufacturers (OEMs) have bumped their heads on the ceiling of inventory build as the economic cycle has brightened. The colour of industry chatter has been of a far more optimistic hew so far in 2013 but order pipelines have been building steadily rather than rapidly, leading to a pause for breath in raw material components and kit that is hitting several UK suppliers (read Shares' recent article: 'Spectris haunted by growth spectre' here).


Interestingly, Spirent's guidance for second quarter revenues to roughly match those of the same period last year, $118.7 million (£77.9 million), was already being anticipated, and little change is expected on second half estimates. This has the effect of capping the cuts to full-year forecasts, with both Investec and Canaccord analysts pitching 8% to 10% profit downgrades for 2013. This, according to Investec, implies a cash-adjusted 2013 price/earnings (PE) multiple of 11.


It's worth pointing out that an early 5.5% share price dive has since levelled off, with the shares marginally higher by mid-afternoon, at 122.4p. If you believe all the rhetoric about super-fast broadband expansion, 4G and mobile growth, even cyber security dynamics, you might come to the conclusion that Spirent is starting to look a little of the discounted side.

Issue Date: 22 Apr 2013