gama shares magazine29 Dec 2014 10:01
Shares Magzine sound bullish on 300-350p being hit within a year, one of their picks for 2015.
Article BelowL:
Out-competing both large and small rivals for years,
Gamma Communications (GAMA:AIM) is a
telecoms technology rarity growing at a pace that
is far out-stripping its peer group. We believe the
shares will put up a banner performance in 2015 on a forecast
upgrade and re-rating double-whammy. Analysts at Investec
have a 295p target price slapped on the stock, but we think the
shares could go close to 350p during the next 12 months.
Newbury-based Gamma finally joined AIM on 10 October
after pulling its previous float attempt as markets turned
sour. This is a technology-based supplier of communications
solutions in the UK. Its cloud and call control products
allow businesses to manage increasingly complex voice, data
and mobility requirements. It also provides best-in-class
broadband, ethernet, mobile and data services.
Unlike most telecoms stocks exposed to a secularly
declining industry, Gamma has focused on developing its own
intellectual property-based solutions to exploit growth niches.
With a proven record for innovative development and fast
deployment, Gamma is already a leading player in areas such
as SIP trunk deployment (a way of plugging into a cheaper,
faster and more reliable network) and hosted PBX, which
effectively uses a web portal interface to provide an end-toend,
managed communications hub.
But what also stands out is Gamma’s route to market. It
doesn’t have an army of engineers, vans and sales
people, instead relying on a backbone of more than
650 channel partners to sells its products and services,
such as Network Telecom, OPUS and the soon to go private
Daisy (DAY:AIM). Roughly 80% of last year’s near-£150
million of revenue came through channel partners.
Effective cross-selling of several, multi-year solutions
together has been part of this successful story. In 2010 ‘bundled’
revenues (SIP, hosted PBX, inbound, data services, for example)
were effectively zero, yet analysis by Investec suggest close of
50% of gross profit will be derived from channel partners selling
four, even five, products and services in a package. This helps
make customers increasingly sticky and future revenues more
reliable, with at the same time maintaining lofty gross margins,
about 48% from next-generation services.
Current forecasts fail to reflect this track record or position
of market strength. Investec admits its own estimates are set
‘conservatively,’ with earnings per share (EPS) growth in the
low single-digits for 2015 and 2016. By contrast, this year’s
EPS is anticipated to rise 26%. Assuming 16% growth can be
met in each of the next two years, and applying an 16-times
price to earnings (PE) multiple, reasonable given the growth
and implied 2.6% dividend yield next year, the shares could be
trading beyond 300p inside of a year.