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Broker tips: Spirent Communications, Superdry, Bytes Technology

By Iain Gilbert

Date: Wednesday 22 Mar 2023

Broker tips: Spirent Communications, Superdry, Bytes Technology

(Sharecast News) - Analysts at Deutsche Bank lowered their target price on telco Spirent from 250.0p to 200.0p on Wednesday, stating the group had experienced a "tough H1 in prospect" and that "a rapid recovery" into 2024 was unclear.
Deutsche Bank stated Spirent had followed up "a relatively cautious trading update" in January with further disappointment on its near-term outlook at the time of its full year in March. The main culprit for a decline in sales in 2023 looks set to be its lifecycle service assurance segment, according to the analysts, who noted that its device testing segment also saw order delays.

"We now forecast the LSA segment to decline by 8% in 2023, driving overall sales to decline by 3%. Spirent's Landslide offering is the leading core network emulation solution, so Spirent has felt the brunt of the delay to the commercialisation of 5G standalone networks featuring a 5G core. Their deployment continues to be slower than expected as previously flagged for several quarters by both Nokia and Ericsson," said DB, which stood by its 'hold' rating on the stock.

DB added that there were several implementation challenges that many press articles had highlighted but said the slight mystery was why Spirent has suddenly felt the effects of the slowdown in a few months when 5G SA had been "facing challenges for some time". The German bank said it suspects the explanation to be Spirent's "heavy indexation to US operators", which make up 45-50% of sales, which have been "very vocal" since the fourth quarter of 2022 about the need to trim capital spending.

Analysts at Liberum reiterated their 'buy' rating and 500.0p target price on clothing retailer Superdry following a "phenomenal deal" that it believes realises "great value" for shareholders.

Liberum said Superdry's move to sell the rights of its intellectual property in the Asia Pacific region to a third party for a net cash consideration of £34.0m was "a very positive step" for the future of the business.

Following its exit of China in 2020, Liberum noted that there were no imminent plans for Superdry to invest in the territory but noted that through this deal, the company has delivered "significant shareholder value" for a territory that delivered just low single digit pre-tax profits in 2022.

"This deal highlights three key facts: (1) how low the current market cap is (this deal constitutes 38% of the current market cap), (2) strengthens the balance sheet significantly (moving into a net cash position), and (3) the belief that Superdry has global appeal and potential has been shown by a very well respected third party," said Liberum.

"This deal de-risks the balance sheet, protects the P&L and whilst a lot of work is yet to be done on its cost reduction programme, is a very positive step in the right direction. The shares should rise significantly today."

Numis upgraded its recommendation for shares of Bytes Technology from 'add' to 'buy' after the software reseller guided towards full-year operating earnings ahead of expectations.

Adjusted earnings before interest and taxes were seen growing by roughly 20% or two percentage points quicker than Numis had estimated. In particular, the analysts noted the "strong rebound" in cash conversion, which saw Bytes end the second half with approximately £73.0m of cash on hand an no debt.

"At a time when investors are sensitive to changes in the demand landscape, it is reassuring to see the group continue to see healthy demand levels across both private and public companies," said Numis, which kept its target price on the stock at 500.0p.

"At 375.0p, the shares are trading on Feb'24 EV/NOPAT of 18.3x, supported by a 4% FCF yield, which we believe is attractive given its growth."

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