Deutsche Bank lowers target price on Spirent Communications

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.

"There are several implementation challenges that many press articles have highlighted. The slight mystery is why Spirent has suddenly felt the effects of the slowdown in a few months when 5G SA has 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.

Reporting by Iain Gilbert at Sharecast.com