Broker snap: KCOM needs a catalyst

25th May 2010 12:48

Hull-based telecoms group KCOM is a long time favourite of FinnCap and the broker is back in buying mode following the company's preliminary results on Tuesday, which were in line with expectations."On the positive side, net debt was £117m, ahead of our expectation of £137m, and the FY [full year] dividend of 1.75p exceeded our 1.5p forecast. All the way through the financial statements there is evidence of tight and competent financial management, within which the working capital movements are not expected to unwind," FinnCap analyst Andrew Darley states."The pension top up of £21m over 3 years is an irritation which the company can cope with, but is an unfortunate distraction to focusing on the company numbers," Darley adds.The broker thinks fair value for KCOM shares is 50p but with the company competing against industry titans BT and Cable & Wireless the problem is finding a catalyst that propel the share price towards that value. "An improvement in the dividend to bring it in line with the yield from other telcos would be just the ticket," the broker suggests.FinnCap has upgraded its rating on the stock from "hold" to "buy".