Broker snap: KCOM to double in medium-term

28th Jan 2011 14:03

A bold statement from management on the growth possibilities of its communications integration arm, plus a still-attractive yield, has prompted finnCap to reiterate its "buy" rating for telecoms group KCOM.KCOM won several contracts during the third quarter, notably: applications integration for Virgin Atlantic; new contracts with Sky Bet and Volkswagen; and the renewal of a managed services contract with Admiral. "Not bad for a summary of one quarter's business wins," notes analyst Andrew Darley."Expected performance delivers the dividend, significantly improved by guidance in the interims; importantly, the dividend supports the share price currently while the company continues to advance its reformed strategy," Darley adds.Management of KCOM, the group, believes that Kcom, its national communications integration unit, can double both revenue and margin in the next half decade, doubling the size of the group.Darley notes that the management's track record in restoring the fortunes of the company since 2008 is noteworthy, and shareholders should be comforted by the extension of Bill Halbert's tenure as executive chairman until the annual general meeting (AGM) in 2012; previously, it was only set to last until the July 2011 AGM."Halbert's prolonged presence should provide reassurance of the correct continuing strategic decisions, while the operational team is clearly delivering on new contract wins from the stated target base. Having controlled and reduced debt, quantified pension liabilities, offloaded the financial burden of the network and significantly increased the dividend, there should be continuing development and appreciation from the investor base," the broker concluded. The target price is upped from 60p to 65p.