Canaccord Genuity positive on US opportunities for Spirent Communication

Canaccord Genuity said Spirent ended the year with a "solid" order book and stated it was further encouraged by signs that three of the firm's top customers, AT&T, Verizon and T-Mobile, were planning to increase spending on network equipment and 5G deployments by a combined 9% in 2022.

The Canadian broker noted that as the major US network providers continue their network upgrades, it expects another year of "solid spending growth" on 5G as well as fibre and high-speed ethernet rollouts and pointed out that Spirent should also benefit from a ramp-up in capex at Dish, which has begun to build a 5G greenfield network with a $10.0bn overall budget, with Spirent named supplier of 5G core network test and validation solutions.

"The US makes up 55% of Spirent's revenues, and we estimate the three US service providers plus Dish generate circa 35-40% of sales, buying its testing and network assurance solutions," said the analysts, who stood by their 'buy' rating and 320.0p target price on the stock.

While Canaccord added that test and measurement was "a relatively small part of overall telecom capex", it believes a double-digit increase in spending budgets will provide "a solid growth backdrop for Spirent".

"It is still early in the year but consensus revenue expectations of 4.5% year-on-year growth for this year could be conservative depending on other moving parts such as demand from the US federal government for military positioning solutions as well as the pace of growth in Europe and APAC," said Canaccord.