Coms plc: Has the market provided a good entry point?

8th May '14 by johnrosier

2 comments 15182 reads

I have recently bought Coms for the JIC Portfolio. Just a 2.5% holding so nothing too racy! The chart below shows the two purchases made on 22nd April and 2nd May.

I blogged the following on purchase of the holding on April 22nd:-

Coms (COMS.L, market capitalisation: £60.7m, 6.6p and 2.0% of the JIC Portfolio) I have this morning added Coms Plc to the Portfolio. It was one of the first stocks that my friend and former colleague, David Thornton recommended last September, after he was appointed editor of the Red Hot Penny Share Guide. So what’s the story? It is mostly about chief executive, Dave Breith, a successful businessman and telecoms entrepreneur who bought a 25% stake in COMS in January last year, with the aim of transforming it from a loss making business into a successful enterprise in “cloud” telephony. Prior to getting involved with COMS he built up O-bit Telecom which he sold to Daisy in 2011.

Coms allows small and medium businesses to make significant cost savings on their communications costs by outsourcing all their requirements, including importantly, all the costly hardware that was necessary with older legacy systems. Coms “hosts” the whole service with all the hardware and software located at its facilities and then “rents” the service online to its clients. The key to success is not only providing cost savings but also good customer service, an area where smaller players such as Coms can gain an edge over the big network operators; Breith and his team are focused on providing a service second to none. He has built a strong management team with a number of new executive appointments over the last year.

Acquisitions have and will play an important role in the growth of Coms; since January last year it has done a number of deals, the largest of which was Comunica Holdings Ltd; the ICT Infrastructure, data centre and smart building solutions business of Redstone plc. The total consideration was £9.5m for a business with turnover of £30.8m in the year ended 31st March 2013. In March this year it acquired Smarter Mobile. Dave Breith described this as “the last piece of the jigsaw for Coms and the company’s telecoms offering, anything we do from here is building upwards. Although relatively small in size, this is an extremely strategic acquisition and one which will give Coms a much…

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AnonymousUser37607

9th May '14

I share many of the thoughts you outline above. This represents a slightly unique position in my portfolio for the following reason – I have still yet to make up my mind about the CEO. Having total confidence in management is one of the basic rules of investing so I have not followed this rule in this particular case (had a position in this company since last year; classified as more speculative).

The CEO has made progress on developing a potentially interesting proposition with the overall Coms Plc platform (mainly through a number of acquisitions)
- However, many of the acquired businesses were loss-making
- The successful integration and turn-around of these businesses still needs to be demonstrated – how effective is the CEO going to be in driving this process?
- This needs to be evidenced in the reported numbers going forward and not just announcing “new contracts”

It should be acknowledged that the CEO has achieved a lot in the short time he has been in charge at Coms Plc
- This should not be underestimated as the CEO inherited a poor business back in early 2013 that was going nowhere
- He was also prepared to put up his own money at a time when there would probably have been few others willing to do it

However, in my view it would also be an improvement going forward if lessons could be learnt from the following:

CEO should not be in the game of making predictions about where the share price will be and should not be fixated on movements in the share price
- CEO’s should get on with running and developing the business, integrating the acquisitions, setting out the strategy etc. - not trying to set share price targets
- The history of CEO’s (and companies) that focus on the share price too much is not favourable
- The share price will ultimately take care of itself – let the market figure it out

Certain comments do not appear to be realistic, at least not in any reasonable timeframe e.g. £2bn revenue, expand into 19 territories, little funding needed to achieve these plans etc.
- Given the current run rate this just strikes me as blue sky thinking – it’s fine to have massive ambitions but you need to be able to support what you say if you make statements like this
- I would rather hear significantly more about the present / near-term and how the acquisitions are performing
- I also have concerns over plans to enter the US, the most sophisticated internet & telecom market in the world – there must be other less-competitive markets that Coms should focus on given its current scale

The joint participation in the Verdes Management deal involving the CEO and Helium (Coms’ largest institutional investor)
- Despite what others may think this is an unnecessary and unhelpful distraction in my view and the CEO should have maintained a 100% focus on Coms – presume its where most of his capital is tied up
- If he wants to invest in fine wine, property, art etc. no-one cares but when it is another public company and he is partnering with Coms’ major shareholder there is a difference in my view

Placing in February was handled poorly and created unnecessary uncertainty – hopefully not to be repeated in the future?
- Can always seek to blame the advisers but ultimately the CEO has to take his share of the responsibility
- In any event the company needs to do a more professional job in its capital markets strategy
- Helium sold down just prior to the placing and then participated in the placing – what was all that about?

Extensive use of Twitter for commentating on the business
- Minor point perhaps but if you have something meaningful to say an RNS will suffice
- Perhaps I am simply old-fashioned in this view….

In summary, let’s see less hype and more evidence of progress in growth, profitability etc. The building blocks seem to have been assembled so the focus should be on delivering.

johnrosier

11th May '14

I know what you mean about companies where the chief executive is obsessed with the share price; the share price normally looks after its self. That is what put me off that company that begins with Q!
In this case I am prepared to give him the benefit of the doubt for the time being as although I have not met Breith, my old colleague David Thornton has and having worked with David for six years I learnt that he was a pretty good judge of character.

Coms plc: Has the market provided a good entry point?

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Johnrosier

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