Calnex Solutions Share Discussion Threads

[apad] 16/2/2021 08:55

Ahead of expectations trumps all sensible comments from hew and multibagger.

I'm Mr. Miserable on the sidelines having decided to buy at 68p and not getting around to it.

I'm hoping that 5G takes longer to deliver than suits PI patience. 😊

Trouble is CLX's market is ahead of the curve.

GLA

apad

[multibagger] 16/2/2021 08:55

Hi Hew,

Beautifully articulated....and the market seems pleased and that is what really matters to the share price Long term fundamentals and drivers for growth remain strong.

Onwards and upwards :)

[hew] 16/2/2021 08:40

Multibagger, noted "calming phrasing" as you did and agree, but I see the tone as just indicating:
"Yes, we've been sandbagging a bit in order to get off to a really good start, but that sand has now run out and we revert to a normal but very firmly positive outlook rooted in our underlying market drivers".

All my own words!

[masurenguy] 16/2/2021 08:05

Great update and initial market response. The key factors for me were:

"As a result of the continued strong performance in the second half of FY21, the Board anticipates revenues for FY21 will be ahead of market expectations. In addition, as a result of lower travel and event costs due to COVID-19 restrictions, higher margins are expected to be achieved in FY21 than would have been anticipated, which will result in the Company's profitability also being ahead of market expectations in FY21.

With the long-term underlying growth drivers continuing, as the market transitions to 5G and the widescale adoption of cloud computing progresses, the Board is confident that while industry spending patterns may normalise in FY22, Calnex is well positioned to deliver its historical growth rates over the long-term. The Group expects to commence FY22 with a healthy order book."

[nobilis] 16/2/2021 07:32

Slowdown as trade normalises ?
Spirit that fell after similar update last minth

[multibagger] 16/2/2021 07:19

Good RNS - however, a slight dampener as I see it - in terms of the language and style of the communication....

".... The Board believes the COVID-19 pandemic may have influenced certain customers' spending patterns, resulting in some revenues being brought forward into FY21...."

"... the Board is confident that while industry spending patterns may normalise in FY22..."

"...While we have now started to see some signs that this early pull through of orders is reverting to more normal levels, we anticipate entering FY22 with a healthy order book."

When NCYT announced stellar results recently, a single sentence which seemed to indicate some conservativeness in the RNS laid waste to all the exceptional results announced.

Have to see how the market reacts, maybe a muted positive response of a few pence uplift ?

Hope I am wrong !

Good luck all :)

[rivaldo] 16/2/2021 07:14

Ahead of expectations - wonderful stuff.

And they're able to state this with six weeks to go before the year end, so things must be looking very good indeed.

Especially as management here are generally prudent, i.e definitely not ones for overstating things. So any playing down of bullishness can be taken with a pinch of salt - they did the same with the outlook for this H2, and we've now seen how that has turned out :o))

[dr biotech] 16/2/2021 07:09

This year is going to be exceptional, next year a decent average?

[hastings] 16/2/2021 07:09

Excellent TU this morning, ahead of expectations and well set for further progress.

[abarclay] 03/2/2021 12:15

Spirent shares are down 15% since the in-line 3Q IMS.

[gerihatrick] 02/2/2021 17:17

could it relate to Spirent issuing good results and also saying "the 5G driven momentum in our lifecycle assurance business continues to be strong" have anything to do with it? Spirent use all the testing kit to do their job provided by Calnex...and 5G testing is exploding world wide

[masurenguy] 02/2/2021 16:46

What big jump ? Opening midprice of 115.5p on a 3pt spread - closing at 119.5p on a 3pt spread !

[petewy] 02/2/2021 15:34

Strong move up but not that many shares traded.
Enlighten me here please someone.
I am monitoring Shares Traded on LSE Share Trades.
what am I missing? Why the jump?

[dr biotech] 26/1/2021 11:55

I think they should keep expanding as long as the 5G rollout continues. So thats going to be for a few years yet. I'm looking at holding for another 12-18months which will probably be their fastest expansion and maximum valuation.

With the CEO holding 20% any sort of takeover would have to have his personal approval. From the interviews I've read thats not top of his list, but I guess he'd have his price.

[multibagger] 26/1/2021 10:11

Many thanks for your kind and well considered analysis Thomshrike. The revenue concentration (though not sure that Spirent account for 70% of revenues as per their recent Presentation) from a few key customers will soften as the CLX overall business grows and new customers emerge to join the 5G rollout.

My take on future revenues is slightly different to yours - I am hopeful that sales volumes are likely to pick up with fairly consistent "blended" margins incorporating the hardware and software elements. Another interesting revenue stream is the sale of warranties, which are likely to translate to pure profit IMHO.

I agree that having just one CEM manufacturer and that too in just one geographical area can be a material risk, but hopefully re-sellers/distributors may hold a bit of inventory in any eventuality. Not sure how long it would take other CEM to start production from ground up, if required. Key man risk in Tommy remains - as in many companies in this stage of their public/listed profile.

[thomshrike] 26/1/2021 09:59

During the earnings roadshow, management said that the usual H1/H2 pattern is 45/55 but believed that some clients might have bought earlier on this FY. On the other hand, their visibility is usually no more than 3 months, so it could be that they were being too conservative.

On the other hand, my biggest concern with future revenue progression is that this could be an early-cycle business. Many customers only need to buy 1-2 units of their product and they arguably do it more frequently at the beginning of a technology cycle, such as 5G. Even though there will always be software upgrades and additional services. My central scenario would be for the revenue growth rate to slow down but margins to pick up. That said, they are hiring at a fast pace (compared to their size), which could put some pressure on margins short-term. It is always a risk when the main peers are larger companies with higher R&D budgets.

The other point is the optionality of a take-over. As mentioned above, Spirent does not make sense (if they were really interested, they could have done it at less than half the valuation pre-IPO). For competitive reasons, it does not make sense for any of the clients either (eg "Nokia buying out the company and then selling their equipment to Ericsson", not likely). So we are only left with peers. But I would not see this as an interesting option for Tommy, as this is his baby, he already took substantial money off the table at the IPO and he is left with a % ownership that is probably near the lowest that will keep him interested. He is so central in the equity story that a potential buyer should have no interest in seeing him leave.

In terms of business risks, I continue to be somewhat concerned with their exposure to Spirent (70% of revenues) and even more to their contract manufacturer Kelvinside (close to 100% of production). I don't expect anything wrong to happen, but if it happens the impact could be very material.

[multibagger] 23/1/2021 18:28

I have bought in fairly late (compared to IPO share price) but nevertheless think this company definitely will go places - I have taken about £60k worth of shares so far.

A number of excellent growth characteristics, very high profit margins, customer stickiness, 21% Founder CEO skin in the game with 3 decades plus in the sector and also having the technical knowledge, high levels of cash generation/positive cash flow, huge geographical spread, penetration into all segments/levels of the market from component manufacturers to network operators/hyperscale users, literally a roll call of global and growing household names as customers have not missed my attention.

Testing and validation is not a one off, but a recurrent massive revenue stream as new upgrades and network expansions will have to be validated and conform to technical/regulatory specifications.

Remember that in highly technical fields/processes or in any safety critical / critical infrastructure networks, once the technicians/engineers learn and repeatedly use a testing regime and equipment, they will comfortably stave off any moves by senior management to move to a competitor product. The risks of experiencing network down time and the financial and/or reputational risks arising from any mishaps will make customers very risk averse.Also next generation of engineers will "grow up" on Calnex gear and further embed the stickiness of customers.

I wonder if Calnex already offer a Training Academy to familiarise and embed their products to a larger cohort of technicians/engineers across the world ? I'm sure that Tommy Cook would have already thought of this, but nevertheless I shall write to him.

Re "static" H1 v H2 revenues conveyed in the Investor Presentation - I get the impression that the management are setting low expectations and expecting to over deliver. A conservative approach that I am more than comfortable with and foresee this company share price at much higher multiples in the years to come.

I will be adding as and when....good luck all :)

[aimingupward2] 23/1/2021 17:06

But, rivaldo, from the interims :

“The Board anticipates that ....... adjusted profit before tax in the second half of the year will be broadly in line with H1 FY21.”

So no, or next to no, increase in H2 over H1, which I find very surprising as there was a big increase last year.

How do you read this situation?

I have holdings in TRMR, IQE and RCH, all of which I think will do much better than CLX, but am/was considering this too. I need to clarify what it’s outlook is and prospects are.

[johnrxx99] 18/1/2021 09:29

Many thanks riv, didn't know that.

[rivaldo] 18/1/2021 08:46

Johnrxx99, you do realise that SPT are a major partner for CLX and utiliser of their products? The better SPT do, the better for CLX. So they may be a buyer eventually, but they're certainly not a challenger.

I see SPT's shares are up this morning on their trading statement, which should overall be good news for CLX. Some extracts:

"Our customers continue to invest in 5G-related infrastructure, devices and services, a trend we expect to continue."

"In the final quarter we benefited from strong growth from our Lifecycle Service Assurance business driven by increased demand for both lab and live assurance solutions as the 5G network continues to roll out. We also experienced some delay for high-speed Ethernet testing by service providers as COVID-19 impacted customer spending patterns."

"In the latter part of the year we saw....strong demand for our new 5G device testing resulted in full year revenue growth for Connected Devices slightly ahead of our expectations."

"the 5G-driven momentum in our Lifecycle Service Assurance business continues to be strong."

[johnrxx99] 18/1/2021 07:15

Will SPT be a challenge or a buyer? Discuss :-)

[petewy] 15/1/2021 16:19

Thanks Riv. Big fan of Rosier:
"have been looking for a stock to play the rollout of 5G Telecom networks and this fits the bill. It is a leading provider of testing equipment used by telecom operators, 5G equipment providers and enterprises that depend on quick and efficient data flow for their business success.*
My sentiments too.

[dicktrade] 15/1/2021 11:05

Rivaldo,

You've found more good news ;-))

Keep looking please, we need as much as we can get ATM.

Thanks