Broker tips: Volution, Spirent Communications

Ventilation equipment manufacturer Volution released its full-year results on Thursday, leading analysts at Berenberg to take a fresh look at the stock.

Berenberg said Volution had ultimately delivered results that came in approximately 2% ahead of prevailing consensus down the income statement and guided for full-year results that will be in line with consensus.

The German bank stated highlights from Volution's numbers included 6.6% revenue growth in the year, underlying earnings margins at 21.3%, and net debt below expectations at 0.8x EBITDA.

"We view this as another really good year of delivery at the company, which continues to demonstrate some of the trends seen in our

more European-industrials-focused products businesses, such as diversification, strong margins and consistent delivery," said Berenberg, which stood by its 'buy' rating and 500.0p target price on the stock.

Berenberg also reminded clients that since its initial public offering in 2014, Volution has delivered an adjusted earnings per share compound annual growth rate of 12.7%, having grown organically and deployed capital well.

Canaccord Genuity has slashed its target price for Spirent Communications by 40% after the third downgrade to forecasts this year but maintained a 'speculative buy' rating on the stock as it said a rebound was still likely.

Spirent Communications cut its near-term outlook on Wednesday as it pointed to an "extremely challenged" telecommunications market and the fact its largest customers are delaying expenditure and technology investments.

"As a result, there is not enough near-term strength in the order book to support our expectations for the final quarter trading, and accordingly we reduce our outlook for the near term," it said. "The impact of negative operating leverage will very materially affect operating profit in this financial year."

Order intake was down 24% over the first nine months of the year, compared with the 19% decline in the first half, which Canaccord said implies a 35% drop in the third quarter alone. Canaccord also pointed out that earnings per share forecasts had been cut by 50% for 2023 – lowering its target price from 240.0p to 145.0p – but predicted that this year will likely be the trough.

"The silver lining now is that in a historic context the share price and our new estimates signal trough from multiple angles: 1) Since 2011 Spirent has never seen a 20% year-on-year decline for more than six months, suggesting a snapback in 2024 is possible; 2) Operating margins at ~10% are close to 2015 lows (9%); 3) The shares' FY23E 14x P/E and 1.2x EV/Sales are at historic trough," Canaccord said. "A rebound in demand, EPS and share price is, in our view, more a 'when' not an 'if' question and we hence maintain 'spec buy'."