Business telecoms technology developer Gamma Communications (GAMA:AIM) plans to pay an end of year dividend after continuing to trade strongly.

The company has proposed a final dividend for the year ended 31 December 2019 of 7p a share, up from 6.2p in 2018.

‘Although we have seen some impact on the rate of growth as a result of Covid-19 we remain positive about the prospects for the group both in 2020 and in the longer term,’ the company said.

Gamma shares nudged a little more than 1% lower to £12.15, a reflection of the stock’s already premium rating, on a 2020 price to earnings of 27.4 versus the telco sector’s typical single digit valuation.

TOOLS FOR LOCKDOWN

Ahead of lockdown, Gamma had noted rising demand for its communications platform products, including remote access to tools like Microsoft Teams.

That saw a bumper first quarter, and while the second three months to 30 June has slowed a bit, the company’s operating model should leave investors reassured. Gamma revenues are largely (about 93%, the company says) monthly billed on a recurring basis, while customer churn is limited thanks to the firm’s track record of strong customer service.

So even while some customers have ‘hibernated’ during lockdown, Gamma has been able to provide valuable support, such as bill freezing while they are not able to trade.

RESILIENT BUSINESS MODEL

‘The only change we see to this resilience story is if lockdown is extended and its smaller commercial customer base starts to really feel the bite,’ said Megabuyte analyst Indraneel Amrapatta on Friday.

That confident view of Gamma is echoed by broker Peel Hunt, which sees the company as a winner from the ‘new normal’ of remote working facing businesses.

It also explains why a potential mild squeeze on first half earnings before interest, tax, depreciation and amortisation (EBITDA) of maybe £1.2m will have limited impact on earnings per share estimates, which Peel Hunt has left unchanged at 44.4p for 2020.

Gamma was a Shares Great Idea two a half years ago, when the stock changed hands at 648p.

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Issue Date: 05 Jun 2020