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AdEPT Telecom dials up the right numbers

Last updated: 02:13 12 Nov 2014 AEDT, First published: 03:13 12 Nov 2014 AEDT

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AdEPT Telecom (LON:ADT) has signalled strong confidence in the future by bumping up its interim dividend by 50%.

The results for the six months to 30 September revealed the half-year divi has been increased to 2.25p from 1.50p last year, on the back of a 12.7% increase in underlying earnings (EBITDA) to £2.4mln from £2.1mln last year.

The increase in underlying earnings extends the company’s enviable streak of increasing half-year EBITDA each year to 12.

Chairman Roger Wilson described the six-month period as an excellent one in which results improved in all key areas.

Adjusted profit before tax increased by 13.9% to £2.2mln from £1.9mln, while free cash flow jumped 29.1% to £2.2mln from £1.7mln.

“There’s no point generating profit if it does not turn into cash,” finance director John Swaite told Proactive Investors.

Net debt has come down by £0.7mln during the last 12 months to £3.2mln, despite the company spending £2.1mln on acquisitions.

Strong free cash flow generation has continued since the end of the reporting period and Swaite told Proactive Investors the company could probably be cash positive in 12 to 18 months, but with interest rates so low the company saw little point when it could earn a better return by acquiring businesses.

Total revenue in the period rose by 11.3% to £11.3mln from £10.2mln, helped by acquisitions but also as a result of new contract wins, an increasing proportion of which are coming from the public sector.

Revenue from next generation services, including data connectivity, network solutions and Cloud-based contact centre solutions increased by 29.0% to 26.8% of total revenue, while the proportion of revenue from old school phone calls is down to 26% of total revenue.

“Calls are a much smaller part of what we do now,” chief executive officer Ian Fishwick told Proactive Investors, adding that some of the pricing pressure in the sector is beginning to ease.

“Fixed lines into buildings are not going to disappear,” predicted Fishwick, but it is clear the company’s focus is increasingly moving to other areas.

“The public sector is increasingly important to us,” Fishwick said, noting that the government is keen to have a higher proportion of small to medium enterprises (SMEs) providing data connections to loosen the grips of the big beasts in the telecoms sector.

The company has bagged more than 20 council deals over the last 18 months and is present on three procurement frameworks; frameworks essentially identify approved government procurement organisations that government agencies can buy from, without having to go through the hassle of putting a contract out for tender, and so are much more significant than individual tenders.

“We are the SME that is leading that charge,” Fishwick declared.

AdEPT's nominated adviser (Nomad) said the results demonstrate good progress on a number of fronts.

A better than expected margin improvement has prompted the broker to upgrade its forecasts for the current financial year (FY15) and next (FY16), while it has introduced forecasts for the year to end-March 2017.

The company is now tipped to make an adjusted profit before tax of £4.2mln this year, up from £3.7mln last year; previously the broker had pencilled in a pre-tax profit figure of £3.9mln.

FY16 adjusted profit before tax is seen rising to £4.3mln (previous estimate: £3.9mln), while the new FY17 number is £4.4mln.

The interim dividend was also higher than Northland expected and it has upped its dividend forecasts by half a penny for the current year and next.

Northland reckons the full-year dividend this year will be 4.5p, and next year's divi will be 5.5p, and it is predicting the FY17 dividend will be 6.5p.

"The share price has failed to reflect the progress made and the potential for further growth both organically and through acquisition and the current discount to the peer group is unwarranted," the broker maintains.

It reiterated its 'buy' rating and upped its price target to 175p from 165p.

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