Canaccord Genuity raises target price on Spirent Communications

Canaccord Genuity stated following Viavi's 172.5p bid it thought a counterbid from Keysight was unlikely due to "dominant combined market share" in high-speed ethernet/HSE testing solutions. However, Keysight's new offer now implies a 2.9x enterprise value/sales ratio, a 19.5x EV/underlying earnings ratio and a 30x price-to-earnings multiple on its 2024 forecasts - a solid 15+% premium to prior industry transactions and more than 60% above price-to-earnings multiples of listed comparators.

"Admittedly, Spirent's earnings are cyclically depressed, but so are those of its peers and with little signs of a demand recovery so far, Keysight's offer looks to us like a 'clearing price'," said Canaccord Genuity.

The Canadian bank said potential catalysts from here will come in the form of regulatory reviews of the deal by US and/or UK authorities, which would likely trigger a widening discount to the offer price, Viavi potentially coming forward with a raised bid, or a "white knight" counterbid from Rohde & Schwarz.

"With the Keysight bid recommended by the board and in our view likely taken up by shareholders, we raise our target price from 172.5p to 199.0p," concluded the analysts.

Reporting by Iain Gilbert at Sharecast.com