CALNEX ON THE RECOVERY ROAD - 16/02/26

Although I rarely revisit stocks that have already served me well, I’ve recently broken that rule with one particular company: Calnex.

I first took an interest in the shares at around 54p some five years ago, and they went on to perform exceptionally well, reaching a high of £1.95.

Not surprisingly, it proved a very rewarding period to be invested in the West Lothian–based business.

However, in 2023 the story took a sharp and unexpected turn, when constrained customer spend and order delays across its key telecoms markets prompted a profit warning.

The result of that saw management looking to extend their reach beyond the telecom arena and focus on other areas to assist future growth.

Despite the refreshed strategy, in 2024 the company faced further disruption after its major sales and distribution partner Spirent, announced that it was being acquired by one of Calnex’s main competitors.

At the time, Spirent accounted for roughly 70% of Calnex’s sales, so the implications were significant and seemingly completely out of Calnex’s control.

Ultimately, though, it was Calnex itself that chose to transition away from its reseller agreement with Spirent, in favour of a broader channel partner network.

While painful in the short term and clearly further impacting near-term numbers, this increasingly appears to have been the right strategic decision.

Rather than remain dependent on a conflicted partner, management opted to further reset the business model and take control of its own future.

So, what exactly is Calnex, and why have I recently decided to buy back in at around the 46p–47p range?

Founded in 2006 by CEO and major shareholder Tommy Cook, the company has established itself as a specialist provider of high-end test and measurement instrumentation.

Its core focus has been serving the global telecommunications and cloud computing sectors, where it has steadily built a reputation as a leading, high-quality niche player.

Under Tommy’s leadership, Calnex has developed highly advanced solutions that allow customers to validate network synchronisation, timing, and emulation performance — areas that are increasingly critical in today’s high-speed, cloud-based networks.

Over the past couple of years (as already touched upon), the business has deliberately shifted away from reliance on third-party distributors towards a more direct and diversified customer base.

This now includes major telecom operators, data centre providers, and large technology companies, providing broader market access and, in my view, more durable long-term growth potential.

As regular readers will know, I’ve covered Calnex extensively in the past and have spoken at length with management over the years.

Recently, I have had the privilege of reconnecting with Tommy and CFO Ashleigh Greenan to discuss the company’s latest developments and future prospects.

Following the period of disruption and rebasing — which saw the shares fall below 40p last year — the company is beginning to resemble an interesting growth story once again.

One of the most potentially significant announcements in this transition came just a few months ago, when Calnex announced a strategic partnership with VIAVI Solutions, the US-based network testing specialist with revenues of over $1 billion.

That collaboration specifically focuses on integrated pre-certification testbeds for Open RAN and emerging AI-driven architectures within 5G and future 6G networks.

The aim is to help equipment manufacturers and operators validate performance and interoperability before formal certification.

By combining VIAVI’s TM500 and XEdge platforms with Calnex’s Paragon-neo and SNE-Ignite solutions, the partnership simplifies the complex, multi-vendor testing environment that Open RAN requires.

 In practice, this can reduce months of debugging and integration work and materially shorten deployment timelines.

The potential importance of this alignment with such a major-player, should be noted, as it could shift Calnex from being a niche timing specialist in the space, to a more marked presence within the industry ecosystem.

This, in short, sees a very real opportunity for Calnex to become a core platform partner across an end-to-end network validation process.

The future result of that, could realistically see an even greater price strengthening for the company, as it becomes embedded in an extensive global sales channel that also provides for strong recurring revenue streams.  

With Open RAN adoption accelerating, this positions Calnex to serve a market forecast to grow from around $6 billion today to $45 billion by 2033 — a substantial opportunity for a company of its size and technical expertise.

That said, anyone looking at the shares purely on near-term forecasts will rightly note that at around 53p, the valuation already reflects a degree of optimism.

Broker Cavendish has adjusted PBT of just £0.8m pencilled in on revenues of £20.3m for FY26, with no forecast as yet in the market for next year.

For some, and understandably those that concentrate on fundamentals, such a lack of short-term visibility will be a deterrent to investing.

Personally though, I am inclined to look beyond the next twelve months and focus instead on the capital-light nature of the business and its operational gearing.

If revenues begin to scale again, profitability should follow at a far quicker pace.

That would in turn equate to an acceleration of the profits and a marked uptick on shareholder returns, whilst cash would once again begin to build.

Of course, talk is cheap and such opportunities need to be captured. So, with that in mind, I was keen to explore management’s thinking in more depth.

Reflecting firstly on the Spirent situation, Tommy explained that Calnex had become heavily reliant on that channel over a number of years.

“We had been with Spirent for about twelve years,” he said, whilst pointing out that the Calnex products had always carried their own branding.

That in itself is quite revealing, the implication being that Calnex was very much an equal partner.

When Spirent was acquired by Keysight Technologies, a direct competitor of Calnex, the management decision to step away was relatively straightforward.

Despite that decision having been taken, Tommy explained that Spirent has remained keen to maintain a working relationship with them.

“It actually makes sense for us to keep working with them and we are continuing to work with them, although we haven’t quite refreshed the contract yet.”

Alongside this, the partnership with VIAVI — announced in November — has become an important additional route to market.

The revelation that Spirent continues to feature in parts of the sales process is both surprising and welcome and serves to further underline the strength of the Calnex offering.

Taken in conjunction with VIAVI and other channels, it arguably provides management with much greater flexibility and resilience than was previously the case.

Although the company had initially considered moving fully to a direct-sales model, Tommy was candid about the challenges involved.

“There is actually a lot of complication in doing that,” he said “so, it certainly makes sense for us to work with partners, for logistics, support, and customer access.”

Given Calnex’s strong historic position across telecoms, but with several new markets now emerging, I was keen to understand where he saw the best opportunities emerging.

“Telecoms remains our core focus,” he said, “and I still believe we can generate growth there, although we may have to wait for the sector to become more vibrant again. I’ve worked in and around the sector for most of my working life and it has a kind of cyclical element to it.”

Importantly, across this field, recent data analysis shows that global telecom capex stabilised in 2025 after two years of significant decline.

Cloud computing and data centres which are more recent features, also continue to be attractive openings, with emulation and timing proving key for growth.

Indeed, the company is, I learnt, already embedded with one of the major data infrastructure providers.

That intact relationship could act as a springboard for further data-centre-related business, which remains a clear strategic target for management.

Tommy also spoke of work being carried out with an unnamed global bank, where Calnex products are being used to test applications that run across complex networks.

This further underlines the high-end and mission-critical nature of the company’s offerings and the clear opportunity that lies ahead.

And, in a world where network performance, latency, and resilience are becoming ever more important, these are not “nice to have” products. They are increasingly essential.

With much seemingly being targeted by the company to push for growth, it perhaps comes as no surprise to hear that the US is now featuring.

Tommy said that in the past they had really neglected the space, which I was told is taking in the defence sector.

“We hadn’t penetrated there in the past, but now we are starting to see success and there could be opportunities for any, or all of our products.”

Going further, the CEO added, “the route to market there is quite difficult and trying to get something over the line can take a long time.”

Despite hurdles to climb, it is clear that management sees the vast US market as a live and attractive opportunity, given that it has taken active and significant actions to support the drive.

This includes the hiring of a US-based business development resource, along with installing their equipment in customer-facing test facilities.

In terms of the actual size of the opportunity for the business in the US, Tommy was very transparent in saying that right now, they really don’t know what that could be.

“The last year has really been a learning process and we are only just beginning to get to some of these big projects.”

Given the high-end value of its products and the barrier to entry, it is reasonable to deduce that the company has more than a fighting chance of making some notable in-roads into the US market.

Additionally, the inevitable and already apparent increased defence spend across Europe also provides for opportunities and a tail wind.

Aside from the areas already touched upon, it was also interesting to hear that the company has been having some success across the satellite industry.

This shouldn’t come as a surprise, given that the space sector is built on ultra-precise timing and synchronization, areas where Calnex excels.  

“With so many assets that are connected and moving,” explained Tommy, “our emulation equipment can be used for training purposes.”

In short, the Calnex tech provides proof that systems will function and perform, particularly when exposed to harsh or rugged environments.

“We really see a lot of opportunity here; it is just how we connect into projects or now get seen as part of that ecosystem.”

With what appears to be significantly increasing and evolving market opportunities ahead, the enthusiasm also has to be tempered with the reality that there is competition to contend with.

To that end, I asked Tommy whether Calnex was really up with the curve.

“I would say that we sit ahead of the curve,” said Tommy.

 “I actually think we are sitting waiting for it, as we have got the products and the technology and we are ready to go and deliver on future changes and what is coming over the hill.”

Having achieved record revenues back in 2023 of £27.4m, investors will no doubt be looking for further evidence that the numbers are rebuilding.

Whilst the expected full-year 2026 revenue of £20.3m remains some way short of that, it does demonstrate a welcome return to growth on the 2024 and 2025 numbers.

Furthermore, CFO Ashleigh Greenan confirmed the effect that operational gearing has on the business.

“As that revenue drops in, our costs remain the same, and even though we have targeted hires, there isn’t a step change in that.”

Ashleigh also pointed out that margins remain positive and maintained, whilst the cost base is pretty much fixed, so as the revenue builds, profits should increasingly flow to the bottom line.

Although the HQ remains in Scotland, the company also has operations in Stevenage and Belfast, whilst there are sales teams spread across the globe. This takes in the US, China, India, Japan, and Taiwan, as well as Scandinavia.

With channels and routes to market now firmly established, Tommy said that it is also about ensuring that they remain at the forefront of what they do.

This not only embraces continued development, but also recognising the markets and the changing nature of areas such as AI, edge computing, and, by association, Open RAN.

A key differentiator is that Calnex has a long history of not only working with customers, but fully understanding their needs through connectivity.

This has resulted in its providing both timing and synchronisation in a single ecosystem, which translates into the offering proving a real stand-out in its field.

Looking at the balance sheet, things look comfortable enough, with Cavendish forecasting a closing 2026 net cash position of £12.6m.

CFO Ashleigh sounded a confident note, pointing out that although working capital can flex a touch in the year, it is comfortable.

Importantly, not only do they have sufficient resources on which to execute on the organic growth path, she added that they could also make a small acquisition if something came up.

For both investors already on board, or those currently keeping their powder dry, positive news flow will no doubt be the trigger for closer engagement.

That said, given the nature of the Calnex business, it is often difficult for management to announce what could be noteworthy news.

On this aspect, Tommy said that they do try to release as much relevant news as possible and that it is something they are open to capturing moving forwards, recognising the important role it plays.

Regarding what lies in store from today ahead to the next two or three years, the CEO said:

“We are all disappointed at where the share price is, but we understand it. We need to hit the targets, and I think there are a number of really interesting opportunities out there. AI has created a lot of churn, but that provides openings for the test people.”

As the likes of telecoms and data centres further adopt AI-driven solutions, their existing network equipment will often need rigorous testing and validation, which provides potential upside for Calnex.

Although the shares have moved ahead from my entry point and now stand at 53.5p, any sign of an acceleration in the return to growth should both rekindle investors’ appetite and provide for a more notable re-rating.

And from a personal investment perspective, I see strong comparisons with Concurrent Technologies and Filtronic.

I have covered both of those here and each has provided extensive returns for investors who got on board a few years ago.

If Calnex can tread a similar path across its chosen markets and capture the opportunities that exist, then investors may once again be handsomely rewarded.