Spirent Communications rallies on Canaccord upgrade to ‘buy’

Canaccord said technology is a growth sector and Spirent's slowing revenue momentum in 2H20 seems to be the reason for the company's more than 40% relative underperformance in the last six months.

"We view the current 'soft patch' as temporary and expect growth to re-accelerate from 2Q onwards, making this a compelling buying opportunity," it said.

The broker noted that AT&T and Verizon - Spirent's two largest customers - spent 30% less capex year-on-year in the fourth quarter, which likely contributed to soft demand reported for high-speed ethernet testing.

Both have guided capex to grow low single digit percentage this year, Canaccord said, which implies an acceleration versus 2H20 run-rates.

"In addition, political certainty post the US election could lead to sustained demand improvement for positioning solutions from the US military."

Canaccord also said that following initial rollouts in key markets such as the US and China, Spirent should benefit from a wave of new 5G-related technology deployments such as OpenRAN, network slicing and private networks.

At 1322 GMT, the shares were up 4.7% at 244.50p.