Gamma’s AGM statement contains a sensible degree of caution around the impact of COVID-19 on the economic backdrop, mixed with its continuing growth story. The group is seeing strong demand for Cloud PBX and UCaaS (Unified Communications as a Service) products in the UK but notes some slowdown in new orders and a lengthening of sales cycles. The business model has successfully moved to home working and, with a high (93%) proportion of recurring revenue, the outlook remains bright. We take a prudent view in reducing our revenue estimates although the impact on EBITDA is more muted. The Group has a strong balance sheet, is cash generative and retains its previously announced dividend payment.
Growth in SIP Trunks and Cloud PBX seats has continued to be positive in the UK, although at a lower level than seen in the first quarter and the prior year. The Dutch business continues to trade ‘positively’, experiencing similar trends to those seen in the UK.
The integration of Exactive Holdings, acquired in February 2020, is progressing well and the business has seen an increase both in activity and in the level of enquiries from Enterprise and Public Sector customers. VozTelecom, acquired in April, is seeing very similar trends in the Spanish markets to those experienced elsewhere by Gamma.
Our revenue estimates (struck prior to the introduction of lockdown in the UK) already included April’s VozTelecom acquisition. We take a prudent view in reflecting a slower level of Group revenue growth, including reduced installations and equipment sales which are non-recurring in nature. We reduce revenue by between 5% and 10% over our forecast horizon although Adjusted EBITDA reduces by only 1% to 3% given the margin mix (much of the revenue at risk relates to lower-margin hardware sales) and our view on the effects of reduced opex and capex.
Overall, the Group continues to execute on its long term strategy with further development of its UCaaS suite of products. It retains an undiminished appetite for further acquisitions which would support the sales of its UCaaS products to a wider geographic market.
Gamma has continued to perform well in the difficult operating environment created by COVID-19. While we take a prudent look at our estimates, it is worth reflecting on the inherent resilience in Gamma’s business model, the strength of its balance sheet and management’s commitment to maintaining the dynamic aims of its strategy.