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My biggest position is Calnex #CLX.
Background: it provides devices to telecom operators like Verizon. Verizon uses these devices to make sure their telecom systems can deal with the huge ramp up in telecom traffic which 5G will bring (5G is a vague term for a plethora of tech
Background: it provides devices to telecom operators like Verizon. Verizon uses these devices to make sure their telecom systems can deal with the huge ramp up in telecom traffic which 5G will bring (5G is a vague term for a plethora of tech
developments occurring over the next 10 years: things like autonomous vehicles using telecoms to talk to their control centres). Calnex has 80% gross margins as it owns this niche. The CEO is ex-Agilent, a US giant in the telecoms testing sector. The advent of 5G is a 10 year
tailwind for Calnex. But after that there’s 6G etc.
To add more flesh:
1) gross margin (c 80%) and EBIT margin (c 30%) metrics are high like FEVR's as everything - apart, crucially, from R&D - is outsourced. All manufacturing and almost all sales distribution is done by other
To add more flesh:
1) gross margin (c 80%) and EBIT margin (c 30%) metrics are high like FEVR's as everything - apart, crucially, from R&D - is outsourced. All manufacturing and almost all sales distribution is done by other
companies.
2) analysts have 0% revenue growth in for H2 2021 versus H2 2022. Yet H1 2021 growth was 37% versus H1 2020. There is no reason for revenue growth to collapse in H2, which is in fact traditionally the stronger half. Thereafter analysts have 6% revenue growth in for
2) analysts have 0% revenue growth in for H2 2021 versus H2 2022. Yet H1 2021 growth was 37% versus H1 2020. There is no reason for revenue growth to collapse in H2, which is in fact traditionally the stronger half. Thereafter analysts have 6% revenue growth in for
2022 - yet revenues grew at 25% in 2019 and 30% in 2020, and the shift towards 5G is, if anything, accelerating, so, again, this 6% prediction is likely to be too low. Since it floated in October 2019, the company has already said it is trading ahead of expectations (in the
November 2020 interims).
3) if the world falls apart again then it has net cash on the balance sheet. Also in 2008, Spirent plc, a sector bellweather in telecoms testing equipment, actually grew revenue - so the sector may be economically resilient.
3) if the world falls apart again then it has net cash on the balance sheet. Also in 2008, Spirent plc, a sector bellweather in telecoms testing equipment, actually grew revenue - so the sector may be economically resilient.
4) at 126p, the shares trade at 33x March 2022 eps of 3.8p; but this eps number is likely to be upgraded and the operational gearing inherent in the business model (with manufacturing and sales largely outsourced) means the upgrades could be substantial.
Also the tailwind - of telecom operators and others needing to test their systems ahead of lauching 5G - is multi-year, so upgrades may continue for years.
5) finally, a new kind of customer is emerging for Calnex - from non-telecoms companies. For hyperscale companies like
5) finally, a new kind of customer is emerging for Calnex - from non-telecoms companies. For hyperscale companies like
Amazon and Facebook have ever-expanding data centres which need precise timing measurements that Calnex can test for (ensuring any glitches can be caught ahead of time). These customers have moved from 14% of revenue in 2018 to 22% in 2020.
6) very lastly, the top 10
6) very lastly, the top 10
customers by revenue (who together account for c 50% of group revenue) have an average 9-year relationship, with repeat customer business averaging over 80% of revenue between FY18 and FY20.
