Broker sees Sepura as attractive potential takeover target

Following an approach from a possible buyer in July, Liberum Capital analyst believes the current weakness of the Cambridge-based digital two-way radio solutions and applications group will attract further acquisition interest

Broker sees Sepura as attractive potential takeover target

Shares in Sepura, the digital communications group which suffered a major fall in share price last week following a negative trading update, rallied a little earlier today (19 September 2016) after broker Liberum Capital suggested that the company was an attractive takeover target.

The share price rose 0.3p (1.9%) to 15.8p today after plummeting by 65% from 28.45p to 15.3p on Wednesday 14 September with a further 3% fall of 0.37p to 11.63p on Thursday 15 September.

Ben Bourne, analyst at Liberum, said in a note today (19 Sept): “Following a preliminary approach announced in July, Sepura’s current situation will draw other potential acquirers. A large installed base of TETRA radios and a foothold in the nascent US market are attractions.”

Last week's fall was triggered by a trading update to the London Stock Exchange on Wednesday 14 September in which Sepura revealed its adjusted EBITDA for the financial year 2017 could be 60% lower than anticipated and that it may have to ask its lenders to waive certain covenants from next March. In addition, CEO Gordon Watling (pictured) is taking extended time off to recovery from injuries suffered in an accident earlier this year

Sepura's trading update said: “Order intake in recent months has been lower than the board's expectations as a result of emerging delays in device refresh opportunities in a number of key markets, primarily through budgetary pressures which are extending product lifecycles. At the same time, key contract awards in the group's systems business have also been subject to delay.

“The latest sales pipeline and associated timing indicates that order intake for the full year will have a significant impact on the group's FY17 revenues. As a result the board now anticipates adjusted EBITDA for the current financial year could be circa 60% lower than its previous expectations.

“The group has sufficient liquidity for its forecast needs. The revised revenue expectations may require Sepura to discuss with its lenders a possible waiver of certain of its covenants from March 2017. Further significant savings are being targeted to realign fundamentally the cost base as part of the continual drive for operational efficiencies across the group.”

Chief financial officer Richard Smith has been appointed acting CEO with immediate effect in addition to his existing responsibilities and the Board is now reviewing senior management capacity and responsibilities.

Smith said last week: “It has become clear that we will not be able to meet our original adjusted EBITDA target. Realigning and reducing the cost base will help mitigate the impact of lower revenues in the current year. Our strong sales pipeline continues to give us confidence in the group's longer-term prospects.”

Following its 2016 results, Sepura announced it was raising £65m to help ease its financial constraints, partly caused by its purchase of Spanish firm Teltronic. It also announced it was pulling out of the DMR two-way radio market (which it only entered in November 2013) and would concentrate on the TETRA two-way radio market with particular emphasis on the burgeoning North American TETRA opportunity.

See also: Sepura looks to manage down debt and capitalise on new markets


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