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Gamma flags strong start to 2021

The communications services provider posted strong UK organic growth, supported by deal activity in Spain and Germany
Gamma flags strong start to 2021
  • Revenues rose 23 per cent, buoyed by organic and inorganic growth
  • House broker suggests group could fare better than rivals amid global chip shortage

Gamma Communications (GAMA) benefited in the first half from organic sales growth in its largest UK market, up 9 per cent to £182m. But its European end-markets also enjoyed a strong start to the year, with revenues more than tripling to £35.4m on the back of two acquisitions.

As a communications services company, Gamma has ridden the crest of the remote working wave during the coronavirus pandemic. It also benefits from strong recurring revenues, which constituted almost nine-tenths of total sales in the first six months of 2021, or £194m in absolute terms. Admittedly, this marked a slight dip from 94 per cent in the comparative period – but that shift was attributed to the takeover of HFO in Germany, which includes commission-based mobile sales.

The group’s UK direct business was flattered to an extent by the acquisition of communications platform business Mission Labs in March, which contributed £2.3m to divisional sales of £51.9m. Management emphasised that the deal has brought with it a strong relationship with Amazon Web Services (AWS).

And on an organic basis, UK growth of 7 per cent still topped Gamma’s expectations, helped by upselling activity and some projects starting earlier than planned. In turn, UK direct posted gross profit growth of 18 per cent to £26.4m.

Analysts at Investec expect EPS of 57.6p, up from 51.3p in 2020. The brokerage said that the first half numbers were “implicitly tracking ahead of FY expectation”. Moreover, it believes that the global chip shortage could compound competition in the cloud private branch exchange (PBX) market – arguing that Gamma looks better-positioned than some smaller vendors. Buy.

Last IC View: Buy, 1,585p, 8 Sep 2020

GAMMA COMMUNICATIONS (GAMA)  
ORD PRICE:2,205pMARKET VALUE:£ 2.1bn
TOUCH:2,200-2,205p12-MONTH HIGH:1,425pLOW: 2,350p
DIVIDEND YIELD:0.6%PE RATIO:30
NET ASSET VALUE:237p*NET CASH:£12.6m
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202017726.222.33.9
202121732.427.44.4
% change+23+24+23+13
Ex-div:23 Sep   
Payment:21 Oct   
*Includes intangible assets of £134m or 139p a share