Tuesday, November 8, 2011

Anite Half Year Trading Update

A super half year trading update from Anite today which can be read here and there is a more detailed write up on Anite in a previous blog post here. It looks highly likely that broker forecasts will have to be upgraded and this makes Anite an even more attractive stock to buy in order to play the growth in the smart phone market.

Investors would be advised to look at the previous post whilst interpreting the update, of which will summarise below.

Anite Half Year Trading Update

This is a first half update, which for Anite, runs to October. The year end is in April. The key point to note (re earlier post) is that Anite is typically a H2 weighted business. Handset revenues are the strongest growth driver at the moment, so the focus will be on this division.  Note that overall revenues declined from H2 to H1 (2010) last year and that handset revenues were flat.

 However, in this H1 Anite are telling us that revenues are up 60% from the same period last year. This implies a sequential movement in handset revenues from H2 to H1 (2011) of £28.9m to £32.9m, when last year this movement was flat. For H2, Anite are predicting that Handset testing revenues and operating profit will be similar to the first half. This may prove a outlook which is too cautionary.

Now, appreciating that Anite benefitted from in Q1 from a large order from one specific customer, there is still reason to expect that H2 will see its usual stronger performance. In this update, Anite confirmed that Q2 order intake was ‘very healthy’ and that since the last update in September the strong trends have continued. This is in line with what everyone else is saying in the smart phone industry.

Anite Analyst Upgrades

Indeed, knocking up some back of envelope assumptions demonstrates the potential for an upside re-rating here.

  • Conservatively assuming (in line with Anite)  that H2 handset sales are the same as H1 would give full year handset sales at £20.6*1.6*2=£65.94m
  • Last full year sales for Network Testing and Travel were a combined £44.15m

Combining the two, gives full year revenue of £110m when current analyst forecasts are for £103.3m. And, of course, this assumes no H2 bias for handset sales. It also assumes flat full year sales for Network Testing and Travel, even though it appears that Anite are bringing forward the period when ‘material’ sales in 4G testing are due to kick in, to ‘later in the year’ from previously in 2013.

Therefore, there is reasons to believe that Anite’s full year numbers will beat even the revised forecasts that the company is conservatively guiding analysts towards. Following this update,  95p is a reasonable price target.