Calnex Solutions announced its Interim Results earlier this week, that were both positive in performance and bode well for the future.
Not surprisingly with nervy markets and sentiment, after a quick tick up, the shares subsequently fell away and as I write are off again at £1.15p on what is very much a black Friday!
It is never good to see your profit dropping off, although having bought first in the 50p plus range, I am thankfully well on the right side and remain comfortable with this investment.
The company, which came to the market last year has very much demonstrated that it has a solid and attractive product offering in the testing space and is well placed for both near and longer term growth.
Having spoken with CEO and founder Tommy Cook along with CFO Ashleigh Greenan on a few occasions now, I was able to catch up with them once again for further comment.
Anyone unfamiliar with the company can take a look here at my first piece of coverage, penned soon after the IPO.
As far as the key numbers for the period go, Calnex reported a very commendable 20% increase in revenue to £9.3m which was largely driven by demand for telecom testing equipment.
Pre-tax profit was also up by 18.4% which saw £2.3m registered against the corresponding periods £2m, whilst net cash stood at an impressive £13.6m.
There was also a maiden dividend declared, which although tiny at 0.28p per share, may be a sign of a progressive path which for those with a longer term horizon can prove highly rewarding.
Speaking with the CEO, Cook sounds highly upbeat, which is perhaps worth taking on board given his previous more cautious tone.
Commenting, he said that growth had not only come from its more established areas, but also from new releases on two of the Calnex platforms which has seen a lot of customer interest.
Additionally, he says that they also have some new applications coming through that has resulted in new customers coming on board. “Overall it has been a good period for us and the growth we have seen in this and the prior period along with the healthy order funnel going through the second half are underpinning our confidence and level of performance, so we are pretty delighted”.
Looking at that performance for the period and future prospects, I was keen to hear about new customers, along with its continued and well established relationship with Spirent.
Cook expands, “new business has been coming across the board, but that hasn’t changed anything with Spirent and it’s the same from their point of view”.
In terms of new business though, the CEO points to the 5G Open Ran initiative as getting a lot of their attention at present.
Having formed in 2018 this initiative is concentrated on the Radio Access Network (RAN) which is one of the core elements of any wireless telecoms network and is now estimated to represent north of 60% of telecom infrastructure capex spending.
Most recently the O-Ran initiative has come up with a number of recommendations around the space such as opening up the network that drives mobile base stations and power and this is providing opportunities for the likes of Calnex, away from some of the much larger industry names that have tended to dominate the space.
Aside the aforementioned opportunity, Cook also speaks of the US and India as interesting areas in terms of performance.
“We have seen a really strong period across N. America and also what we call the rest of the world, although actually, India did really well along in that with some parts of Europe.”
Although China has seemingly slipped in terms of year-on-year growth for the company, Cook says that they had largely expected that due in part to the geo-political situation, but that it is now very much where they thought it would be and expect the region to return to growth next year as the signs are there now.
With organic growth positive and the mood music sounding for a continuation of that, many investors will no doubt be wondering if an acquisition could now feature, particularly with Calnex sitting on a very healthy net cash cushion.
“It’s something we have continued to look at over the last couple of years and although there aren’t a huge number of companies in the space there are a number out there and we have had a couple of interesting discussions this year. Although nothing has come of those, it is something that we continue to do.
We have a very healthy cash balance, so if the stars line up and we see something of interest, then we are in a strong position to offer cash, paper or any combination of the two that we think is the right thing for that”.
Cook also mentions the ongoing importance and opportunities around data centres, where he says that they are seeing good traction. Data centres and networks are in some ways beginning to merge he adds, which sees Calnex continuing to build relationships across the space that could hold them in good stead.
Whilst there is clearly plenty going on for the company to continue to focus on, Cook also points out that there are new industries or areas that could provide for further opportunities.
When it comes to critical timing within infrastructure he says that the financial sector also requires similar needs and solutions to the telecom sector, so there are some interesting secondary markets that are now opening up that also includes the power industry.
The CEO comments that there are a number of places that are starting to come alive that they have been talking about for a while, suggesting that there is real cause for optimism on accelerating growth moving forward.
Concluding, Cook is happy to say, “confidence is pretty strong at the moment going into this period and it feels like there is a trend happening now and its coming from a number of places which is reassuring”.
Looking at broker Cenkos forecasts for the full year in progress the expectation is for 2022 revenue of £20.2m, EBITDA at £8.8m and an adjusted pre-tax profit of £5.6m.
This moves to £22.1m on revenue next year with EBITDA at £9.8m and adjusted pre-tax profit of £6m. EPS have been pencilled in at 5p for this year, moving to 5.3p next year which puts the stock on a forward PER of 21.
That may look up with events at present, but with growth prospects emerging in both existing and new areas which have a high barrier to entry along with with an increasing cash pile, then the shares remain highly attractive to me for holding and indeed adding on any further wider market weakness.