Calnex Solutions delivered its maiden interim results this morning, which not only looked extremely impressive, but paved the way for broker Cenkos to upgrade on the full year 2021 forecast numbers.
The company, a designer and producer of test instrumentation solutions to validate the performance of critical telecom network infrastructure only came to the market last month, which saw my own taking of a position soon after at 52p.
Having at that time been able to catch up with CEO and founder Tommy Cook along with CFO Ashleigh Greenan, I have today been fortunate enough to speak with them both once more on the back of the results.
The numbers released today and the accompanying tone made for pleasant reading which has pushed the shares higher into the mid 80p range as I write, and has no doubt shone a light onto the growth prospects of the AIM newcomer to a wider audience.
Revenue for the six months ended in September saw a significant 37% increase to £7.7m with adjusted pre-tax profits rising to £2.3m, marking a 90% jump.
The company added that it expects full year 2021 results to come out ahead of current market expectations, which in turn has resulted in Cenkos upping its own numbers.
Whilst no doubt investors who recently climbed on board here are feeling pretty excited about today’s figures, there is once more a grounded reaction from CEO Cook, who said to me with half a smile “they’re pretty good”.
There is certainly no excessive banging of the drum from the founder, more a continued theme of quiet confidence and where there is a clear hand on the tiller.
“Despite the Covid issues, business just kept on going really and there were certain benefits for both us and customers as people began working from home” says Cook.
“There were not surprisingly a few ripples around with some changing habits and there was also within that increased spend too. We also saw both new and repeat business along with benefits from key customers, so overall it turned out higher than we had expected”.
Although Calnex does not strictly have ongoing recurring revenue, it does however enjoy significant and increasing repeat business from customers and much of that runs for as long as a nine year period.
Although Telecom customers have historically dominated the top ten customers in terms of demand for its products and services, more recently non-telecom customers have recently featured.
Cook says, “what we are increasingly seeing is the likes of Facebook and Google operating on their own networks which they also build themselves. These are extremely time and mission critical, operating in huge warehouses dealing with masses of data, so they really need to ensure that everything performs”.
With industry trends having already been positive, these look like accelerating further and with over 600 customer sites across 68 different countries, Calnex looks extremely well placed to continue on its growth path.
The market in which it operates is expected to reach some $2,033.8 million by 2024 which is expanding at CAGR of 11.5% with the Asia-Pacific region leading the way, closely followed by N. America and Europe.
Just as it works with numerous and for the bulk of it major end customers, so too are there partners for its products including Spirent here in the UK.
“We have been working with Spirent for around six or seven years now” says Cook, “they are a very good partner to us and we have a reseller agreement in place which works well, although anything related to us will always have the Calnex name appearing on it”.
At a time when staff elsewhere have been furloughed, Calnex has taken additional people on and recently added another ten heads with more set to follow as demand is clearly evident and Cook is keen to continue the growth drive.
Within that, there is an ongoing and very clear commitment to R&D, where CFO Greenan adds that the spend is following trends as they ramp up projects and where it appears that given the level of growth and prospects, the spend is required at a faster rate than previously thought.
But, that should bode well for the company moving forward across all its end markets, particularly in light of the mass roll-out of 5G networks and cloud services creating both rapid and long-term changes across telecom markets.
As the business is both cash generative and profitable, I ask Ashleigh Greenan about the prospect of dividends being on the horizon for shareholders.
“When we came to market, we had full year 2022 in place for commencing dividend payments and that is something we are sticking with along with continuing to invest in the business”.
Although spend on R&D is currently tracking northward, the CFO says that further ahead this will subsequently reduce back to more normal or historical levels.
With organic growth proving strong, net cash from operating activities of £2.8m compared very favourably with that of H1 in full year 2020 marking an excellent performance.
On the subject of acquisitions it would appear that although it remains on the agenda, shareholders shouldn’t expect that something is imminent.
Cook pointed out that they have had plenty going on within the business, although they were always ready to search and engage.
“There isn’t anything very near term” he says, “but we do have it clear in our minds of what we are actually looking for, that being something like a specific product to enhance the existing portfolio”.
The area Calnex operates in - as mentioned before is very fragmented, which Cook acknowledges - provides them with opportunities on which to target. So, with a potential buy remaining in the frame at some point, holders of the shares should be duly rewarded further down the line.
And looking ahead, Broker Cenkos is now expecting for full year 2021 revenue of £15.4m with adjusted pre-tax profits of £4.3m and adjusted EPS of 4p.
However, with a strong outlook coupled to the first six month performance, these numbers could yet prove conservative, particularly in light of the industry dynamics and a fast changing environment.
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