We believe that communications kit designer Gamma Communications (GAMA:AIM) has substantial scope to bounce back as we near publication of 2021 full year results (to 31 December) on 22 March. The stock has been pulled sharply lower in recent months as investors rotated out of growth companies, particularly things even vaguely connected to the technology space.

Yet company commentary has been uniformly positive throughout and Gamma reaffirmed last month that it remains on track to meet expectations raised twice in 2021. That implies adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of £90.5 million to £96 million on revenue in the £444.5 million to £455.6 million range. Adjusted earnings per share is pitched at 57.6p to 64p.

With a track record for under-promising and over-delivering, we see Gamma as a unique play on integrated IT and communications using cloud technology. Already a strong growth trend, the pandemic hastened most organisations in their shift to embrace cloud flexibility and cost efficiency, yet Gamma has a habit of out-competing both large and small rivals in what is increasingly known as the unified communications-as-a-service industry, or UCaaS for short.

Gamma already has significant scale with a strong track record for developing communications solutions, and we would expect the company to continue expanding its offering, creating an increasingly compelling value and service-based proposition.

Traditionally UK-only, Gamma has expanded into Europe over the past few years through sensibly priced acquisitions, accessing markets in Spain, Holland and Germany. Its £1.61 billion market value means it would go straight into the top half of the FTSE 250 index if it chose to depart AIM, and it may do so in time.

The stock is currently trading on a 2022 price to earnings multiple of 22.8, based on the 69.6p EPS consensus. Yet Numis believes this year’s forecasts are underestimating Gamma’s growth potential thanks to strong across the board demand, acceleration to next generation communication networks and tools, and national fibre rollouts. Numis’ own 2022 EPS estimates stand at 72.6p.

Numis calculates EBITDA of around £94.6 million will be reported in March, or roughly 15% year-on-year organic growth, which strips out everything to do with recent acquisitions and pandemic-related one-offs.

In September 2021, Gamma became one of only a few telecom service providers globally to be recommended by Microsoft Teams, offering further expansion opportunities. Numis confidently predicts compound growth in EBITDA and EPS in the mid-teens out to 2024.

Investors should strap in for this growth journey while the shares are trading at a discount to their typical rating.

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