Gamma Communications PLC

Gamma Communications PLC (LON: GAMA) is an FTSE AIM UK 50 Index company that provides Unified Communications as a Service (UCaaS) in the United Kingdom and Europe.

The Group has proposed the ex-dividend date and record date for the final dividend with regards to the period of FY21 end on 1 June 2022 and 6 June 2022, respectively.

Investment Rationale for Valuation – Speculative Buy at GBX 1,326.00

• Resilient Performance: The company reported revenue growth during FY21 on the back of decent performance of the European business unit that also includes a full year of acquisitions done in Spain and Germany, in 2020.
• Product Launches: The Group has launched several key products in its core UK market during FY21. This also includes enabling its customers to integrate their Horizon Cloud PBX service with Microsoft Teams.
• Acquisition: The company has acquired Mission Labs on 3 March 2021 which enables the combined team to continue to develop the existing Mission Labs products and to leverage its capability for producing future products.
• Technical Indicator: The price of the stock is trading with low 14-day RSI levels of ~39.28.  

Key Risks

• Market Headwinds: The present macro scenario remains very uncertain owing to geopolitical conflicts and the emergence of new variants of COVID.
• Regulatory Risk: The company is also exposed to Government rules and regulations, which can impact the business flow.

Financial Highlights (for the year ended 31 December 2021, as of 22 March 2022)

(Source: Company Website)

• Rise in Revenue: Revenues grew by over 14% to £447.7 million in FY21, compared to £393.8 million in FY20.
• Profit Before Tax: PBT decreased by 10% to £67.2 million in FY21, compared to FY20 owing to the inclusion of profit on disposal of The Loop business in FY20.
• Net Cash Position: Net cash improved by over 3% to £49.5 million in FY21 end, from £48 million in FY20 end.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

Conclusion

The Group seems to be upbeat about its prospects going forward as it believes more businesses will make use of cloud communications to enable a more flexible and digitally enabled working environment.

The stock made a 52-week high and low of GBX 2,350.00 and GBX 1,293.90, respectively.

Based on the decent financial performance, expected synergy from acquisitions, optimistic outlook and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Gamma Communications PLC at the current market price of GBX 1,326.00 (as of 07 April 2022, as on 08:40 AM GMT+1) with lower double-digit upside potential based on 22.55x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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