I.C comments27 Nov 2014 18:35
Andy Brown at brokerage N+1 Singer predicts a 20 per cent rise in fiscal 2014 revenues to £326m to lift pre-tax profits by a quarter to £14.6m and produce EPS of 5.6p, up from 4.7p in 2013. On this basis, expect an 11 per cent increase in the dividend to 2p a share, covered 2.6 times by post tax profits.
Furthermore, as legacy contracts are replaced by higher margin contract wins, and given the board’s keen focus on cost control, Mr Brown expects another step change in profitability next year too. For 2015, N+1 Singer forecasts pre-tax profits of £18.8m on revenues of £332m to produce EPS of 7.1p and a dividend per share of 2.2p. On this basis, the current year forward PE ratio of 10 drops sharply to 8 for 2015, and a prospective yield of 3.6 per cent rises to 4 per cent for next year.
There is of course execution risk, but with the board stating at this late stage of the year that trading is on course to hit those 2014 numbers, then that risk is already being factored into a modest stock market valuation. Indeed, I think investors are starting to warm to the growth story once again, so ahead of a pre-close trading update in January I would be taking advantage of the depressed share price. Importantly, the company is fully funded to deliver on the multiple contract wins it has been awarded.
Offering more than 50 per cent upside to my fair value target price of 85p, I rate Communisis shares a very decent buy on a bid-offer spread of 54p to 55p.