The past 12 months have been tough for Spirent Communications (LSE: SPT). The company has struggled to make headway after reorganising its operations earlier this year and as usual, the market has not been prepared to wait for the company’s turnaround to take shape.
Nevertheless, after recent declines Spirent looks to be an attractive investment for many different reasons — here are three.
Net cash balance
It may seem silly to say but one of Spirent’s most attractive qualities is the company’s current cash balance.
You see, something that’s often overlooked when investing is the importance of a company’s cash flow and resulting cash balance. Spirent had a strong cash balance of $168.4m at 30 June 2014, after spending a combined total of $68m on acquisitions, share buybacks and dividends during the first six months of the year. A free cash flow of $19.1m during the period helped fund acquisitions.
With this strong free cash flow and net cash balance, Spirent has room to execute management’s growth strategy and continue to pay a dividend during the process. Further, the stock buybacks will help boost earnings per share growth when business picks up.
Defensive market
The telecommunications market is well known for its defensive nature. Indeed, most portfolios will have a telecoms stock in situ somewhere as their defensive nature and predictable cash flows support hefty dividend payouts.
As a leading communications technology company, specialising in the testing and measurement of information technology communication devices, Spirent is no different. In other words, Spirent is the company that makes sure everything works the way it should do.
For this reason the company is set to benefit from the trend of outsourcing key services by major providers to reduce costs. And the group is also likely to benefit from the rise of the Internet of Things, as device connectivity increases.
New strategy
Spirent changed strategy earlier this year. The company has made mistakes in the past, under investing in key technologies, which resulted in competitors gaining the upper hand over the company. So, with a new management team in place, Spirent set out this year to change for the better and align itself with key technologies.
Spirent is now focused on areas where it holds a leading niche, such as Network Testing, new 4G testing opportunities and live network monitoring. Further, the company has reorganised its internal working environment with a view to unleashing a more innovative, creative approach to solving problems.
Unfortunately, due to the rapidly changing face of the telecommunications industry, Spirent’s new strategic plan has not started to pay dividends yet. However, the telecommunications industry is going through a period of consolidation, which is why orders are being delayed and postponed.
