Gamma’s trading update for FY 2017E reflects continued strong growth in all its non-traditional products. Adjusted EBITDA is anticipated to come in slightly ahead of market expectations. Given that we are at the top end of consensus, we leave estimates unchanged although we note that the year-end cash position is better than our number. As expected, momentum from a good first half looks to have continued through the rest of the year. Consequently, we expect to see good profitability in both the direct business and the growth products in the indirect business when results are reported in March. For the year as a whole, Gamma’s Cloud PBX and SIP Trunking products continued to grow ahead of the market while the direct business announced a number of ‘significant’ contracts. As flagged, Gamma launched its converged offering before the year-end. In all, Gamma looks to have delivered a strong performance in 2017, living up to the potential seen in the interim results.
The update suggests that Gamma continued to deliver well to plan in both the direct and indirect businesses during the second half of 2017. Again, its SIP Trunking and Horizon Cloud PBX products have performed well. It also states that volumes of Broadband and Ethernet products are reaping the benefit of past investment while its own (Full MVNO) mobile service showed volume growth.
Gamma’s decision to own its own platforms is a key differentiator from much of the competition and its ‘Connect’ fixed/mobile converged product was launched in December.
The direct business announced significant new contract awards including; Care UK, Rush, Stackhouse Poland and Thrifty UK and the Public Sector base grew with further key wins.
At c.£31.6m, closing net cash is a ahead of our estimate of £30m. The update notes that around £13m was spent on the network in 2017 including the flagged £5m on the new national network which was expected to be mainly an H2 17 expense.
We currently estimate Capex at £22.5m for FY 2017E, including the network investment we mention above, and higher spending on customer premises equipment - effectively success-based expenditure reflecting the increase in sales in Gamma’s data and Cloud PBX products. Given the continued strong delivery in the second half, Capex could come in higher than our estimate as well, reflecting that performance.