Strong start to the year in UK businesses

Today’s AGM trading update states that Gamma has made a strong start to the year in its UK businesses, while the challenging economic environment and some impact from foreign exchange have contributed to the European businesses making a slower start. Recent acquisitions are performing in line with expectations. Cash generation remains strong, with net cash of £140.4m as at 30 April (vs £101.3m last year). Management expects adjusted EBITDA and adjusted EPS to be in line with current market expectations for FY24. We maintain our forecasts and note that, despite recent share price strength, the shares continue trade at lower multiples than we were accustomed to prior to the pandemic.

Strong start to the year in UK businesses

Gamma’s results for the year ended 31 December are in line with the expectations confirmed in the January trading update. Revenue of £521.7m is 8% ahead of FY22, with gross profit at £267.2m showing the same progress. Adjusted EBITDA grew by 9% and PBT by 10%, although the impact of higher tax rates was seen in the 5% increase in adjusted EPS. Cash generation was strong once again, with 108% adjusted cash conversion. Year-end cash of £134.8m is £42.3m above the year before, even after the £30.5m in acquisition spend. Perhaps the most anticipated element of today’s news is the statement regarding the £35m share buyback programme, alluded to in the January trading update. On an operational basis, Gamma is making good progress in Business, Enterprise and Europe. For those looking at ‘undervalued’ UK equities, Gamma’s growth stands out.

More happy returns

Gamma’s trading update for the year ended 31 December confirms adjusted EBITDA and adjusted EPS in line with market consensus (£113.8m-£116.0m for adj. EBITDA and 74.2-77.4p for adj. EPS). Business is performing well and making progress with the development of its product offering, while Enterprise is winning notable contracts. In Europe, Gamma has made strong financial progress. Year-end cash was £134.8m (FY22: £92.5m) with operating cash conversion over 100%. The statement refers to an update on the approach to capital allocation with the full-year results in March.

Aligned with the stars

Gamma Communications’ H1 results, released today, show strong performance in the two UK business units and very encouraging revenue and profit growth in Europe. Revenue of £256.2m was up 9% (H1 22: £234.7m), while adjusted EBITDA also improved by 9% to £56.5m (H1 22: £51.9m) and adjusted EPS grew by 5% to 37.5p (H1 22: 35.6p), or by 11% on a constant-tax basis. Gamma’s strong cash generation was once again a highlight. Net cash (pre-leases) at the period-end was £121.7m, up from £92.5m at the start of the year.

Switch-on to the PSTN switch-off

The trading update for the six months ended 30 June confirms that Gamma performed well in H1 and is set to report in line with market expectations for the full year. In the UK, Business (formerly Indirect) is performing strongly and Enterprise (formerly Direct) has won a number of significant contracts. In Europe, EBITDA grew healthily, supported by forex. Cash generation is in line with the 90% conversion guided to, with net cash at c.£121.5m (FY22: £92.5m). We maintain our forecasts, noting that our figures are towards the lower end of the ranges.

Resilient operational and strategic progress

Today’s AGM trading update confirms that Gamma has continued to show growth across all three business areas. Management expects the strong start to the year to continue and for FY23 adjusted EBITDA and adjusted EPS (fully diluted) to be in line with market expectations. UK Direct and Indirect both continue to perform well, and in Europe the H2 22 improvements have continued into FY23. New products have helped growth in Europe, while in the UK Gamma has launched its Simple Swap product for SME customers to convert their legacy data and voice services as PSTN switch-off approaches. Despite the strong balance sheet, excellent cash generation and an impressive growth outlook, Gamma’s shares appear to trade on undemanding multiples.

AGM update – ticking all the right boxes

Gamma’s results for the year ended 31 December 2022, released today, are in line with expectations and guidance, and show a strong performance with 8% growth in revenue (£484.6m vs FY21 £447.7m), 10% improvement in adjusted EBITDA (£105.1m vs FY21 £95.4m) and 12% increase in adjusted diluted EPS (71.8p vs FY21 64.0p). Cash generated by operations was up by 10%, resulting in year-end net cash (pre-leases) of £92.5m (FY21 £49.5m). Trading in the UK, in both the Indirect and Direct businesses, was strong, with Germany leading the way in Europe. The impressive and consistent progress, and notable drive on investment in technology, suggest to us that Gamma’s recent derating is unjustified.

Continuing UK growth drives profit and cash

Gamma’s trading statement for the year ended 31 December 2022, issued today, confirms that the group will be able to report another year of strong financial performance, with results in line with expectations. The UK business has been trading strongly through both the Direct and Indirect channels, while UCaaS adoption in Europe continues to build, with Germany showing notably strong UCaaS growth. We maintain our estimates for FY22 and FY23 following today’s statement, and look forward to the full-year results on 21 March for more detail on the progress of the business.

Confidently following a consistent course

Gamma Communication’s robust H1 results, released today, contained no significant surprises, following the confirmatory trading update issued at the end of July. Revenue for H1 increased by 8% to £234.7m (H1 2021: £217.4m), Adjusted EBITDA increased by 13% to £51.9m (H1 2021: £46.0m) and Adjusted EPS was up 16% to 35.6p (H1 2021: 30.6p). Net Cash at the period end was £72.6m, up from £49.5m at the end of December 2021. The business continues to grow, the growth drivers remain intact, we have raised estimates and, in our view, the recent derating seems unjustified.

Quality shining through

Gamma’s H1 trading update, released today, reaffirms guidance and confirms that, despite wider market concerns, the company is seeing strong year-on-year adjusted EBITDA growth, with healthy progress in the UK and Europe, while meeting the challenges of inflation and the hardware supply chain.

The growth story continues

Gamma has today issued a Q1 trading update, coinciding with its AGM. The update confirms that the year has started positively, with revenue growth across all operating segments. Management expects this positive momentum to continue throughout the year, with full-year adjusted EBITDA and adjusted EPS being in the upper half of market estimates. We have tweaked our FY22 revenue estimate down (£495m to £488m) but left our earnings figures intact.

Q1 update – on course for another growth year

Gamma’s results for the year ended 31 December 2021, released this morning, are broadly in line with our expectations. While revenue fell slightly short of our forecast, £447.7m vs our £455.6m estimate (£393.8m FY20), the company achieved higher margins than we had expected, yielding an Adj EBITDA figure just ahead of our forecast, £95.4m vs our £94.0m estimate (£79.0m FY20). The strong overall results reflected robust operating performance across the group – some areas very strong, some slightly less so, but combining to demonstrate why, in our opinion, Gamma remains a favoured, high-quality stock in the UK market.