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Gamma Communications - Results in line, robust cash generation, dividend up 17% and share buyback

Updated: Apr 7

Gamma Communications (GAMA.L, AIM 50, Market Cap £1.32bn, 1240p, Medium Risk/High Reward, 4.0% target, currently 2.7% of JIC Portfolio).


Gamma Communications plc is a provider of Unified Communication as a Service (UCaaS) into the United Kingdom and European business markets. The Company's segments include UK Indirect, UK Direct, European and Central functions.


Results for the year ended 31st December. (The full release can be found HERE)


Conclusion: Results align with expectations for revenue, adjusted pre-tax profits, earnings per share and the dividend, which is up 14% for the year. That reflects strong cash flow (cash generated by operations of £123.5m, up 25%), leading to net cash at year-end of £135m, up 46% from £92.5m. That means that, in addition to the 14% dividend increase, it has earmarked £35m for share buybacks over the next six months. It is good to see the Continental European business gaining traction, and it will hopefully be an engine of growth in future. Recurring revenues (an attractive aspect of this company) grew 7% and represented 89% of revenue. The increase in corporation tax reduced earnings per share growth to 5%.


The shares look good value at 16.6x 20024 forecast earnings. The yield is only forecast at 1.4%, with the company using some of its strong cash position for buybacks and further acquisitions. The shares look to have decisively broken up after a period of consolidation. I’m glad I added it to the Portfolio last month, and I think it has plenty of growth opportunities ahead.

 Key highlights

·           Strong financial performance with growth in all business units and strong cash position.

·           Three acquisitions completed: Satisnet, in August 2023, a leading provider of cyber security services and solutions; EnableX Group, in December 2023, giving us a relationship with Ericsson-LG and access to their UCaaS solution, iPECS; and Coolwave Communications, in February 2024, an international SMS and voice services provider allowing us to provide Operator Connect and other carrier services into nearly 20 countries.

·           Through these acquisitions and strengthening existing partnerships we intend to have a full UCaaS portfolio with our in-house developed product, PhoneLine+ for micro-businesses, Horizon and iPECS for SMEs, and a Cisco suite for larger SME and Enterprises customers. Most of these can be integrated with Teams.

·           After applying the Board's capital allocation framework we are announcing an intention to launch a share buyback programme of £35m to be executed over the next six months, until early September.


Financial highlights

The Group delivered continued strong financial performance with good gross profit growth flowing through to both Adjusted EBITDA and Adjusted PBT, with significant cash generation.

·           Revenue and gross profit grew by 8% to £521.7m and £267.2m respectively (2022: £484.6m and £247.7m), with gross margin being maintained at 51%.

·           Recurring revenue (being revenue which is recognised "over time" as per note 3) grew by 7% to £462.8m (2022: £431.7m), remaining at 89% (2022: 89%) of total revenue.

·           Adjusted EBITDA grew by 9% to £114.3m (2022: £105.1m) ahead of 8% growth in revenue and gross profit with maintained focus on cost control.

·           Gamma Business continued to grow strongly, primarily driven by our UCaaS portfolio but also supported through targeted price rises. Gross profit increased by 8% to £176.1m (2022: £163.7m#) with a stable gross margin.

·           Gamma Enterprise grew gross profit by 7% to £52.6m (2022: £49.3m#) partially supported by the Satisnet acquisition. Gross margin decreased slightly from 48.3% to 47.8% due to Satisnet having a lower gross profit margin.

·           The European business delivered gross profit growth of 11% to £38.5m (2022: £34.7m#), 8% excluding foreign exchange movements, with gross margin improving from 47.4% to 48.5% supported by the successful integration of NeoTel, acquired in 2022.

·           Profit before tax increased by 10% to £71.5m (2022: £64.9m) after a £12.7m non-cash exceptional impairment of development cost intangible assets and £3.3m of non-recurring exceptional restructuring costs (note 4).

·           Adjusted EPS (fully diluted) for the year increased by 5% (2022: 12%) to 75.1p (2022: 71.8p). The reduction in growth rate was primarily due to the adverse impact of the increase in UK statutory corporation tax rate in April 2023.

·           Cash generated by operations increased by 25% to £123.5m (2022: £99.1m) with Adjusted cash conversion of 108% (2022: 94%), primarily a result of favourable working capital movements, in particular the effect of some prepayments in 2022 not repeated in 2023. This underpinned a net cash increase of 46% to £134.8m (2022: £92.5m), achieved after total payments of £30.5m related to acquisitions (net of cash acquired) and £15.2m paid as dividends in the year.

#See Note 3 for segmental change information and restated comparatives.


Andrew Belshaw, Chief Executive Officer, commented,

"Gamma has produced another strong set of results. Recurring revenue, stable margins and cash generation continue to be a feature of our business. We have grown in each business unit and the growth in our European business is particularly pleasing.

As well as our organic growth, Gamma has made acquisitions which have added to our growth potential and our ability to sell additional solutions to our existing customers.

We have developed our solution portfolio in the UCaaS space, and in the UK, for the first time, we will have a portfolio of solutions to serve any business of any size - we plan to replicate this in Europe throughout 2024. I want to thank our customers, partners and colleagues and look forward to working with them as we continue to grow the business over the coming years.

I am very pleased with this set of results and the opportunities which lie ahead of us suggest a promising future for the group."


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