Having netted £90m from the sale of its national fibre network, KCom (KCOM) wasted no time in streamlining its business, consolidating its brands, expanding the regional network that it retained and shifting its focus towards higher-margin offerings. Lower sales and nearly flat costs drove adjusted cash profits down 14 per cent to £32m.
Comparable sales fell across KCom's three divisions, and underlying cash profits only rose in the unaffected Hull and East Yorkshire business, partly due to a one-off supplier credit. More positively, management extended its regional fibre network to 104,000 premises, increasing total connections to 33,000. It expects to reach 150,000 premises or two-thirds of its customer base by December 2017.
Underlying revenue slid 9 per cent in the enterprise segment due to flagging sales of older network products and a large early payment from key customer HM Revenue & Customs. Nonetheless, concentrating on more lucrative cloud and integration services helped it win work with Bupa, Shoosmiths and others. Management has ceased investing in the third division, which serves small- and medium-sized businesses outside the group's heartland.
The downside of KCom's hefty spending was that its investing cash outflow ballooned by more than half to about £26m. Broker finnCap trimmed its forecasts and now expects adjusted pre-tax profits of £37.3m, giving EPS of 5.9p, down from £47.9m and 7.5p in FY2016.
| KCOM (KCOM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 108p | MARKET VALUE: | £558m | |
| TOUCH: | 107.8-108p | 12-MONTH HIGH: | 125p | LOW: 95p |
| DIVIDEND YIELD: | 5.5% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 16p* | NET DEBT: | 57% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 178 | 24.2 | 3.8 | 1.97 |
| 2016 | 165 | 16.1 | 2.5 | 2.00 |
| % change | -7 | -34 | -33 | +2 |
Ex-div: 29 Dec Payment: 1 Feb *Includes intangible assets of £98.4m, or 19p a share | ||||
