Spirent boosts buy-back scheme despite tough market

Spirent has doubled its share buy-back programme to £100m after calling time on its acquisition programme and cancelling its US listing. The telecoms equipment testing company also set aggressive targets to improve its profitability in 2007, despite persistently tough trading conditions.

Spirent has completed four acquisitions this year for a combined sum of nearly £40m, to bulk up its product portfolio in areas such as fixed-mobile convergence and wireless networks.

The flurry of deals followed a period of restructuring during 2005, when the company cut costs and disposed of its HellermannTyton division. Anders Gustaffson, the chief executive of Spirent, said the company has no further acquisition targets in its sights and would focus on integrating the companies it has purchased while also improving margins through further cost-cutting.

As a result, the company has doubled its share buy-back programme to £100m. Spirent had £146m in cash at the end of the first half and has spent more than £28m in share buy-backs. The investment bank UBS forecast that Spirent would repurchase about 16 per cent of its shares in issue over the next year.

Spirent said it would look to increase operating margins to 15 per cent at its performance analysis division by the end of 2007, from 3.5 per cent at the end of the first half. Mr Gustaffson said he expected to achieve this in spite of depressed market conditions. "We're not banking on heroic revenue growth to achieve these targets," he said.

Spirent expects a modest increase in revenue during 2006, on the £259m it recorded last year after a disappointing first half of the year, dependent on its fourth-quarter performance. The chief executive said the fourth quarter is historically a strong period for Spirent, and sales of new products, most notably TestCenter, have been strong.

Part of the cost-cutting programme will be to delist its shares from the US exchanges. Spirent said the move would save it about £3m. It will also shut some operations in Glasgow and Belfast to trim expenditure.

Evolution Securities moved its recommendation on Spirent to "add" from "sell", and raised its price target to 56p from 42p as a result of restructuring action and the margin recovery anticipated in performance analysis.