Communications testing kit designer Spirent Communications (SPT) topped the FTSE All-Share leaderboard in early trading after investors rallied behind the firm’s wireless testing acquisition.

The FTSE 250 business said it is buying US-based OctoScope for an initial $55 million, funded from its existing cash pile. The price could rise to $73 million if performance targets are met.

BETTER PLUGGED IN TO WI-FI

Founded in 2006, OctoScope uses patented technology to provide automated Wi-Fi and 5G testing in emulated real-world environments, including the latest Wi-Fi 6 and 6E technologies. Its products are used by a blue-chip roster of communication service providers, chipset, device, network infrastructure and Wi-Fi equipment vendors, including Google, Facebook, Verizon, Qualcomm, Nokia, Amazon, Philips and Sony.

Spirent is already a market leader in providing test, assurance and analytics solutions for next generation communications, particularly around 5G mobile networks. OctoScope will bolster these capabilities but crucially, turn Spirent into a world leader in Wi-Fi.

‘WiFi testing is a fast growing area due to transitions in technologies as well as the continued expansion of the market’, said analysts at Liberum.

Investors chased Spirent stock nearly 8% higher to 245.9p.

CASH RETURN NOT OFF CARDS

Spirent laid out growth plans in October and hinted that the right acquisitions would play an important part of the strategy. Liberum anticipates more deals will get done down the line, although analysts still see scope for some level of shareholder cash return also.

Analysts at Stifel have previously flagged 2018’s $30 million special dividend, when Spirent handed 36p per share to investors. A similarly sized cash return would imply a near-15% payout ratio based on today’s share price. With around $180 million of net cash still on the books after today’s deal, returning this sort of cash to shareholders would not hamstring its growth plans.

Spirent will announce 2020 full-year results on 11 March, when Liberum expects Spirent to confirm continuing strong momentum in the business.

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Issue Date: 05 Mar 2021