The UK electronic components designer continues to walk a fine line between declining mature markets and emerging new ones that hold the promise of replacement growth. At the moment much of Laird's (LRD) focus is on specialist materials and components for mobile communications, things like high-spec antennas, embedded wireless chips and various radio frequency (RF), microwave and electro-magnetic shielding, much of the latter going into smartphones.
And that's part of the problem. Global smartphone sales are in decline, pinching Laird volumes.
Quarterly figures from Apple (AAPL) a couple of days ago, a major customer of Laird, showed iPhone volumes dropped 15% in the three months to 30 June to 40.4 million units, and that was seen as impressive. That fed through to the UK component supplier.
'The underlying revenue decline caused by weakness at Apple (against tough comps) was actually better than we expected at -9% year-on-year,' claims Numis analyst Nick James. He was anticipating a 15% revenues knock from Apple.
'Despite the impact of the smartphone cycle and the sales decline in WACS organic constant currency revenue fell by just 3.6%,' says CEO David Lockwood.
Last year Laird earned around 85% of its revenue from outside of Europe, and UK sales would be only a small part of the remaining 15%, hence the boost from the pound's plunge.
Elsewhere, a 'rapid and substantial downturn' in US rail freight markets, to which Laird provides wireless monitoring services, also dragged on half year to 30 June figures, particularly in WACS, or wireless access communication systems. That prompted a swift 12% share price sell-off to 293.5p. Just a year ago the stock tipped the scales at over 400p.
One area where Laird hopes to capitalise on large emerging demand is in souped-up cars filled with electronic gadgetry. As Shares explained in a detailed feature in March (read here), this is an exciting growth opportunity. 'There are plenty of growth estimates in the market pointing to a rapidly growing market for super-connected, digitally advanced vehicles,' we wrote then.
'Steve Brown, president of the telematics business unit at UK electronics engineer Laird reckons there will be something like 250 million connected vehicles by 2020 that will have created a revenue market of $38.7 billion annually, according to his statistics.'
There are other market opportunities too, medical being another.
Which accounts for Numis's James' ongoing optimism. 'Outlook for the second half remains favourable from Apple and new technology presents significant growth opportunities in full year 2017 and beyond with new smartphone customers and a further broadening in the automotive and medical markets,' states.
'We cut EPS by 8% in in full year 2016 to 22.2p from 24.2p and by 5% in in 2017 to 25.6p from 26.9p. This is clearly disappointing, but our confidence in longer term prospects is unchanged and PE of 14.9-times and 13-times for 2016 and 2017 respectively looks very attractive.'
