Doubled divi at KCOM

26th May 2011 16:49

Hull-based telecoms group KCOM leapt to a 52-week high on the back of a 40% increase in profits and a doubling of the full-year dividend.Underlying profit before tax in the year to 31 March rose to £41.2m from £29.4m the year before. Reported pre-tax profit soared to £32.9m from £19.2m.Earnings before interest, tax, depreciation and amortisation climbed 8.8% to £76.0m from £69.8m a year earlier, on revenue that slipped 4.2% to £395.4m from £412.8m.The company said the slide in revenue represented a deliberate policy to eschew low margin business, and pointed out that revenue in the second half of the financial year, at £200.6m, was ahead of the first half figure of £194.8m.Net debt was reduced by £34.8m to £82m at the end of March, while the pension defcit was slashed to £6.9m from £50.4m.The cash generation has given the board confidence to more than double the full-year dividend to 3.6p; last year, the divi was 1.75p. "Our results are ahead of expectations, with strong cash generation and a further strengthening of the balance sheet," said Bill Halbert, executive chairman of KCOM."We are pleased, based on those results, to be recommending an increased final dividend of 2.5p, making the full year dividend 3.6p, more than double that of the previous year and to reiterate our earlier commitment to 10% dividend growth over the next two years, reflecting the board's confidence in future performance".Broker finnCap notes that having tipped the wink at the interims stage that the full-year dividend would be increased to 3.3p, the company over delivered with a a pay-out of 3.6p."With revenue and EBITDA in line, while we have yet to see the evidence of delivery of management's ambition for material margin and revenue growth in, the dividend delivery and guidance oozes confidence," finnCap analyst Andrew Darley said. "We haven't seen KCOM grow revenue organically for nearly a decade; however, if the company can move to a higher value-add model delivering new customers and growth from a resold BT product portfolio with "higher touch" levels of customer service and delivery, the potential is there," Darley suggested.The broker has reiterated its "buy" rating but raised its price target to 80p to peg the valuation on a projected 5% yield.David Johnson, analyst at Northland Capital Partners, said: "Better than expected results with a cherry in the form of a bigger final dividend. After two years of restructuring, the business has reduced debt, moved out of lower margin business and reduced the pension deficit."Northland is sticking with its "buy" rating for the stock. "In spite of a 40% share price appreciation over the 12 months, it still looks attractive on this basis," Johnson said.--jh