IPO Watch - Calnex (LON:CLX)

10th Dec '20 by Jack Brumby

17 comments 9369 reads

You might think 2020 is not the year to float your company, but the truth is there are a few recent IPOs on the market. In fact by my counting, there have been close to 20 this year. That’s lower than last year but it’s still plenty of new entrants.

There is a wariness around IPOs - why buy something being sold to you by investment bankers when they have much more information than you do? But there are always exceptions to the rule, and every once in a while this lack of information can result in a great opportunity for the diligent investor.

Here are some of the more notable IPOs this year in order of listing date:

Name	Sector	IPO date	Market Cap	IPO Price	Share Price	% Performance
The Barkby Group	Consumer Cyclicals	07/01/2020	£38.16m	30p	22p	-26.7%
Calisen	Industrials	12/02/2020	£1,150m	240p	208.6p	-13.1%
Inspecs	Healthcare	27/02/2020	£268m	195p	265p	+35.9%
FRP Advisory	Industrials	06/03/2020	£243m	80p	101.75p	+27.2%
Suppy@me Capital	Industrials	23/03/2020	£150.7m	0.68p	0.48p	-29.4%
AEX Gold	Basic Materials	31/07/2020	£82.8m	45p	45.45p	+1%
THG Holdings	Technology	21/09/2020	£6,090m	500p	670.6p	+34.1%
Various Eateries	Consumer Cyclicals	25/09/2020	£59.2m	73p	66.5p	-8.9%
Calnex	Technology	05/10/20	£90.6m	48p	99.8p	+107.9%

We covered Inspecs (LON:SPEC) here although it’s safe to say, with everything else going on this year, I haven’t kept up with developments. The group announced a £64m placing on 19 November that will be used to help pay for the £84.7m acquisition of Nuremberg-based eyewear supplier Eschenbach.

That’s a material development for the £268m market cap Inspecs and is probably worth a closer look in itself. But for now I’d like to focus on Calnex Solutions (LON:CLX) - the clear standout from the list above in terms of share price performance.

Calnex (LON:CLX)

Share price: 99.8p

Shares in issue: 87,500,000

Market cap: £87.3m

Calnex makes hardware and software solutions that test the performance of critical telecoms and data network infrastructure. It’s an important function in a rapidly evolving and expanding industry, and Calnex is trusted by many of the world’s leading operators.

We can see revenue, operating profit, and free cash flow are all growing at decent rates (albeit over just a three-year time period):

wKNy8efhEp3mVzBuQnDFzGW0KyNp72D8IBc6Eo4Gwq8s45Nm_K5i95gTwF-Pxwr7zAAhtkk_pZB_jv-Qfw9l5xlVchKgw-LRiZWQqSsoIao-po_91xWXGkxeHziBPeK4EaJfXOWN

It is profitable, cash generative and entered FY21 with a record order backlog. That sounds promising - my only real question right now is: is it too expensive after a 100% rise, or is there still plenty of upside left on the table?

The group has a Value Rank of just 17 and,…

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Nebraska1977

10th Dec '20

How do it’s products/services stand-up against the competition? Difficult to invest in anything without good insights on that in my view.

Richard Vasey

Thank you, Jack, for such excellent detailed background and analysis of a company which has recently popped up on one of my screens. It is a big help in fleshing out the rather limited picture I had formed.

Calnex Solutions (LON:CLX) is already well established and has good growth prospects but, like you, I am nervous of going in so soon after the IPO and at the current price. I may live to regret it...

Damian Cannon

Useful article thanks Jack. I initiated a position in Calnex Solutions (LON:CLX) recently on the back of their excellent interim results. For more background this recent results presentation is worth a look: https://www.piworld.co.uk/2020...

Jack Brumby

Thanks for the comment and the link, Damian. Do you often go for IPOs or is this a bit of an exception? And which part of the results in particular stood out to you?

There is a lot to like here on the face of it, with the focus on R&D and patents combined with the high level of forward visibility on industry developments.

Hi Nebraska,

It's a key question, and, for what it's worth, there are a couple of brief comments re. competition in the Admission Doc, for example:

Calnex is focused on the design validation, conformance test and maintenance test phases of the development life-cycle, which it considers to be high value niches, due to their position as critical points in the development life-cycle, requiring high capability and high-value test equipment and where the Directors’ believe there is limited competition.

Given this is an IPO, finding a reassuring level of detail is always a bit of a struggle, but comments like the above paired with the apparent barriers to entry (like good customer and regulator relationships, product roadmap visibility and R&D spend, and complexity of testing products) do paint the beginnings of a positive picture.

The Ox 2906

Thanks Jack, excellent! I was just looking the day before yesterday for a comprehensive list on 2020 New Issues, thinking this year might have thrown up some good bargain valuations. The LSE website is hopeless!!

Anthony Beater

Calnex (LON:CLX) I have recently dipped my toe in the water with a small holding here and have not been disappointed. The figures look good and the company appears to be in an interesting sector that could bring more growth in the future.

TEIN

Thank you Jack, Calnex Solutions (LON:CLX) has been on my watching list and so I'm pleased to have some expert anaylysis. It's price has settled a bit after a spike last week, this morning however you seem to have lit a rocket underneath it....

Wilbraham

Interesting, thanks. Calnex seems in some areas to compete with Spirent Communications (LON:SPT) which is one of the survivors of the dotcom bubble.

dfr1

Good report Jack , i hold these shares and was interested when i also noticed slater investments as a major share holder , plus major share holders hold over 75 percent of these shares , which as we see today when there is any comment the shares go on an extreme ride . I think Calnex Solutions is just in the right sector at the moment to keep pleasing to the up side.

tim boddington

Inspecs has proved to be a very successful investment with 35% growth over 8 months. As a long time user of Eschenbach products, I am partially sighted, the quality of their products are outstanding so this promises well for Inspecs. I am currently seeking a position in Telecoms as I have nver investted in this sector since BT in 1988. I will certainly take up Calnex. Thank you for the excellent data Jack.

I normally avoid IPOs like the plague Jack as they're often over-priced and placed on the market at the cyclical peak of attractiveness. However Calnex Solutions (LON:CLX) has gone public for sensible reasons, it has a solid track-record of revenue/earnings improvement and I can see how it's exposed to several areas of growth. Interesting enough to take out a starter position.

Peter171

11th Dec '20

I have always been interested in new technology stocks and the developments within the industry itself. Luckily I learnt about Calnex Solutions (LON:CLX) very soon after its IPO. To me it had two essential features and criteria which I look for, the founder has retained a major holding, it has a moat around the coy which I would suggest will be very difficult to copy and last but not least is sitting in a niche position within the communications industry.
Whilst I have already top sliced my holding at almost a 100% gain I am certainly a long term holder in Calnex. The only draw back is I don’t see much drift back in the price in % terms which would enable another bite of the cherry. If the owner were to make a sizeable realisation then I might follow suit.

HHR

I did some research on Calnex last week :-

I liked

- The article below independently substantiates two claims made by the Calnex Admission Document - firstly that 5g relies on testing equipment more than previous mobile protocols, and secondly that Calnex has a leading niche position in the test industry
https://eantc.de/fileadmin/eantc/downloads/News/2019/EANTC-MPLSSDNNFV2019-WhitePaper-v1.2.pdf

-Recent expansion in workforce is a sign of confidence and could be a leading indicator of future growth (10 posts in H1 with 10 more planned in H2 vs existing headcount of 96)

- divi promised for FY 2021/2

- apparently good employee relations should attract the best talent which is important in maintaining market leadership

- plenty of previous M & A in CLX's sector (Keysight takeover of Ixia, Anite. Benchmark takeover of Lark) combined with CLX's apparent market leadership provides a potential safety net

Concerns

- Apparently cheap IPO price (trailing PE of 13) combined with relative lack of institutional support for the float (3 institutional investors hold just 26%) make me concerned that a glitch may come soon. This is somewhat mitigated by the excellent recent interims

- Niche nature of products could limit potential runway for growth

- Ambiguous outlook given at the interims suggesting H2 will be in line with H1 (which would be a disappointing H2 outcome), whilst at the same time claiming that trading in the first 2 months of H2 are in line with recent trends (which, if continued for the rest of H2 would mark an excellent result)

- failed Luceo acquisition

- Reliance on distributers for sales (60% of sales are through Spirent)

The Hierarchy

19th Dec '20

I managed to buy into Calnex just after the IPO and bought in, so very happy with the performance to date. Spoken with the CEO and CFO on a couple of occasions and wrote the following that may be of interest to others. https://martinflitton1.wixsite...

Thanks for your articles Martin. They helped me get up to speed with Calnex Solutions (LON:CLX) when I decided to buy in on the day of the results. The shares have gone on a bit of a run since then and are fairly priced at current levels. In time their operational performance should catch up.

AnonymousUser997423

21st Feb '21

i bought Calnex at 124 under small cap this week for 124 and they are now down 7.8%.

IPO watch - Calnex (LON:CLX)

Calnex (LON:CLX)

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Jack Brumby

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