Gamma has this morning published a 2019 trading update which provides strong evidence of two key trends – the UK business continues to take market share and deliver strong profits and cash, and the nascent expansion into Europe is faring well, with good growth and integration on track. Given that the metrics appear materially in line with our (and consensus) estimates, we make no changes to our forecasts, but note the positive commentary around performance relative to expectations.
The group has described its 2019 performance as being slightly ahead of consensus for both Adjusted EBITDA and Adjusted EPS, and in line with consensus for revenues. Our estimates (as shown below) are fractionally ahead at the EBITDA level (£62.5m vs consensus £62.3m) and fractionally behind for EPS (39.6p vs 39.9p). Our revenue forecast of some £328m is also fractionally below consensus at £329m. The release also includes an actual net cash balance - £53.8m at the year end, relative to our estimate of £56.2m, although our estimate did not incorporate the recent acquisition of Telsis). Overall the performance appears very much on track for our (and consensus) estimates, and suggests that the business is on track, with good revenue progression and high levels of profitability and cash conversion.
Gamma continues to deliver well in the UK market, with growth in the key areas of SIP Trunking and Cloud PBX, with Collaborate gaining traction and with above-market performance in Broadband & Ethernet. The European business is also tracking well, with the Nimsys deal integration on plan and Cloud PBX and Mobile both ahead of local market growth. A Microsoft Teams-related SIP Trunking product is planned, presumably targeted at Enterprise-grade UCaaS integrations.
This update, whilst relatively brief, provides good reassurance that all is on track with both Gamma’s UK and European businesses. This solid performance has been achieved despite clear pressure across some segments of the UK market (we note Maintel’s announcement earlier in January regarding procurement delays impacting performance).
We take a significant level of comfort from this performance, which serves to provide a steadily growing level of confidence in our estimates for 2020 and beyond. We make no changes to estimates, but look forward to further news on European expansion and UK market development during the year.