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.

With a growing track record for under-promising and over-delivering, we believe the company will increasingly emerge from under the investment radar. It’s worth noting that two brokers have started covering the stock in the past three or four months.

That could result in 25%-plus share price upside over the coming 12 months or so to 800p or even higher.

TECHNOLOGY & TELECOMS CONVERGE

Gamma is a technology-based supplier of communications solutions exclusively to enterprise customers in the UK. The traditional telephony-based office is being transformed by new technology and mobile communications. Gamma has been taking advantage through a suite of in-house-designed VOIP-based products, or voice over internet protocol. This is the methodology behind telephone and videos calls over the internet.

Its recently launched Connect product is a fine example. Launched a little before Christmas 2017, it is designed to combine the functionality of fixed line communications with the flexibility and portability of mobile. Estimates imply as many as 26m existing Gamma product users could become paying customers in time.

More than three-quarters of 2017’s £115m first half revenue came via its army of more than 1,000 channel partners, the rest through direct sales. With a strong track record for developing communications solutions we would expect the company to continue developing its suite, creating an increasingly compelling value and service-based proposition.

M&A COULD BE USEFUL GROWTH LEVER

But there is also scope to add extra value by making select acquisitions, then cross-selling its best in class converged communications services to the enlarged customer base. This is
a road less travelled by Gamma so far, but a valuable growth lever to pull when it feels that the time is right.

This is a business with 90%-plus recurring revenues. That means investors have a clear steer right from day one of a new financial year of what levels of growth are needed to meet forecasts. Since joining AIM in 2014 the company has put up compound annual revenue growth of 22%, according to numbers crunched by Numis analysts.

Analysts anticipate pre-tax profits of £26.6m for the 12 months to 31 December 2017, increasing to £28.4m this year. That’s towards the steady rather than spectacular end of the growth spectrum, although the company have a habit of outstripping forecasts. (SF)

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