If you are excited about 5G connectivity, UK-listed telecoms and connectivity testing kit manufacturer Sprient (SPT) is one of the most direct ways to invest.

With 5G next generation mobile networks around the corner and new, faster ethernet broadband technology in the pipeline, Spirent has been on a hiring binge to meet client demand, adding a slew of new managers and building out its sales and marketing teams.

As we explained in our recent feature on the topic, 5G promises exponentially faster mobile download and upload speeds, much greater bandwidth to send the explosion of data volumes, and latency (time lag) all but eradicated.

The company has earned long-standing and trusted customer relationships built over many decades, and its global engineering, operational footprint combine with a strong balance sheet that provides a healthy safety net through uncertainty, and flexibility to meet emerging opportunities head-on.

It should have around $230 million (£175 million) of net cash on the books by year end.

Investment in 5G networks might have been put on the backburner through the Covid crisis, yet this has not been the case. This is partly explained by the mission critical nature of its network and security kit and services supplied to the US military, space agencies, life sciences organisations that go far beyond the mobile network operators.

Even during the teeth of the lockdown the company was able secure key orders to support customers across its portfolio despite most of its China-based workforce working from home.

Though Spirent saw softness in some areas in April and May, US defence for example, demand recovered strongly in June and into the third quarter. As a result, the company seems to be seeing healthy momentum into the second half of the year across all its businesses.

Since joining as chief executive in May 2019, Eric Updyke has also steered Spirent on a course towards greater recurring revenue streams. The hope is that this will help smooth out what has historically been unpredictable, project-based revenue, one of the risks that investors associate with the business.

Beyond that, Sprient has also developed its sales and marketing structure to make them more effective at exploiting the firm’s leading technologies. This is part of the margin improvement story.

Better gross margins were a key highlight of recent half year results that saw the company outstrip forecasts. Spirent reported a gross margin of 73.4%, well above the 71.9% forecast of analysts at Liberum.

Spirent is a key supplier to a multi-year connectivity upgrade cycle. Trading on a 2021 price to earnings multiple of around 25, the stock may not make huge waves immediately, but over the medium to long term, this an exciting returns value builder to own.

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