Adept Telecomm (2.5% of JIC portfolio) I have bought a new holding in Adept Telecom.
It was brought to my attention as it showed up on the "Jim Slater Zulu Principle" screen on Stockopedia:
The following description of its activities is taken from Stockopedia " AdEPT Telecom plc, is a United Kingdom-based company providing voice and data telecommunications services to both domestic and business customers. The Company provides fixed line calls, line rental, mobile and data connectivity products to thousands of business and residential customers across the United Kingdom. The Company offers a range of business telecom products for all sizes of business. AdEPT’s Inbound Call Handling services offer a way to manage inbound calls, with online access enabling customers to implement changes instantly. AdEPT broadband products offer unlimited downloads and Internet speeds of up to 16 megabits, 50 megabits of Webspace."
The Company has grown both organically and through acquisition, in what is still a highly fragmented market, with over 300 companies providing voice and data services into the business market. It has made 18 acquisitions to date, the latest Bluebell Telecom, in August. Bluebell is a classic example; Adept paid £2m with a further performance based deferred payment of up to £0.5m. For this it has acquired 3000 business customers with annualised revenue attributed of £1.8m and should be significantly earnings and cash flow enhancing. Adept expects to sell additional services to the newly acquired customers, thus enhancing revenue per customer and customer loyalty.
Organically, Adept is gaining momentum both in the public sector & charity sector through its ESPO Network and in UK Universities and Colleges through the JANET framework.
Conclusion: I am attracted to the Company as it seems to be well managed, have a good strategy to build its market share through organic growth and sensible acquisitions, in an industry ripe for consolidation. It also seems to be undervalued by the market; the table above, from Stockopedia, demonstrates this well. The shares are valued on a PE ratio of 10.3x consensus earnings forecasts for the year ending March 2014 and 9.5x March 2015 for 9% growth; I would however expect these estimates to be increased over the next year. It increased the dividend by 200% last year and is forecast to grow it by a further 67% in the current year putting the shares on a prospective yield of 2.03%, covered 4.8x by earnings. The balance sheet is strong and the company is highly cash generative. After paying the £2m for the Bluebell acquisition out of existing resources net debt is forecast to be stable year-on-year at c.£3.4m. (See transactions)
With a market capitalisation of only £26m it is one of the smallest companies in the portfolio.
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