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KCOM (KCOM): Corp Trading update | Maintel (MAI): Corp Trading update | Zambeef (ZAM): Corp Firing on all cylinders
KCOM MAI ZAM
As revealed at the February trading update and subsequently reiterated, KCOM prelims delivered EBITDA slightly ahead of expectations (+8% vs fC) from revenue slightly behind (-4% vs fC). The 6p dividend was confirmed and reiterated for a further year, while net debt outperformed expectations, benefiting from £11.6m free cash in-flow compared with our £6m forecast outflow. Specific Enterprise issues highlighted at interims included complex cloud software contracts precipitated losses, which in addition to a slow-down in government spend removed Enterprise’s growth in the period – however, margins turned positive in 2H. Prospects in Hull and East Yorkshire (H&EY) continue to be driven by fibre and remain bright, with more customers now taking broadband over fibre than copper, with genuine fibre to the home unlike BT’s half-hearted fibre to the cabinet. With board changes in progress (CEO and CFO) but board confidence evident in the maintenance of the 6p dividend, we look forward to recovery in the long-troubled Enterprise division, where underlying value remains the diamond in the rough. Target 120p based on dividend yield, with free cash flow set to strongly improve post-completion of the Hull & East Yorkshire fibre roll-out.
KCOM Group
KCOM reported interims which highlighted robust performance in the stable, cash-generative Hull and East Yorkshire division: as the current cash flow backbone of the group, it has generated additional revenue from delivering fibre to the home; while Enterprise performance has the chance for growth, with healthy underlying performance masked by the purdah of the General Election, and some complex cloud software contracts which precipitated losses and provisions. We reviewed forecasts to show an FY18 -4% movement to revenue and -7% to EBITDA (FY19: -4%; -8%); however, dividend expectations are unchanged and continue to offer a healthy 5.9% yield. At a target 5% yield, our target price is 120p (130p).
KCOM has delivered prelims in line with expectations, including 2H revenue performance of £166m (vs £160mE) and adjusted PBT of £20.8m (£19.1mE). The dividend is line with expectations and board commitment at 6p for the full year (2H: 4p) and net debt better than expected at £42.4m (£50.5m). With the triennial hysteria of a material movement in the actuarial pension deficit also avoided, and cashflow able to accommodate existing dividend levels, the yield premise for holding the stock is strengthened. With continuing strategic development to clarify revenue and cost allocation showing underlying growth in consumer (within Hull & East Yorkshire division) and Managed Services (within Enterprise division), there are evident sources for growth. Target 130p reiterated.
KCOM’s interims show a focus on the continuing transformation of the business in cost and investment, under a single brand. The benefit of the cash injection from the network sale has led to the opportunity for significant investment both in the Hull & East Yorkshire division and the nationwide Enterprise division, to create a platform for growth. With a reiterated commitment to a minimum 6p dividend for FY17 and FY18, ongoing cost-saving initiatives, and proof of customer enthusiasm for the integrated platform which investment will further support, KCOM continues to deliver an attractive dividend in anticipation of its return to headline growth. Target 130p reiterated.
KCOM has delivered prelims to March in line with expectations. The year was transformative in achieving the £90m disposal of the national network while maintaining profitability and investment in East Yorkshire and reassessing the national business into Enterprise and SMB-focused reporting streams. With financial capacity to invest in growth while retaining the ability to comfortably accommodate pension payments and the dividend, KCOM can look ahead positively. Target 130p reiterated.
KCOM*: Prelims to March, investing in growth (CORP) | Independent Oil & Gas*: FY 2015 results (CORP) | Sirius Real Estate: Still looking good (BUY)
KCOM SRE IO7
KCOM continues to enjoy the stability provided by the East Yorkshire division (KC) funding the board commitment to 10% dividend growth: KC delivers stable margins from gentle growth and ARPU maximisation achieved through initiatives such as the fibre rollout. Kcom (the national managed services division) remains a business in transition, within which Eclipse and Smart421 display strong growth prospects. High-profile contract wins and successful implementation such as the Workplaces delivery for HMRC prove notable Kcom capabilities, even as the focus on cost de-duplication is ongoing. KC's dividend funding remains core to the investment proposition, while the transformation at Kcom offers mediumterm opportunities. Target 130p reiterated.
KCOM*: Prelims on track (CORP)
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