Today I decided to buy some shares GAMA for my new ISA.
GAMA supplies telecoms software that connects to their hardware for commercial messaging, video and voice calls. It also provides file sharing services and the ability to make simple phone calls.
Stockopedia shows good metrics for the company. Its 5-year compound annual growth in revenues is 13%, operating profit 14%, operating cashflows 24%, dividends 13%.
It has net cash, a 5-year average ROCE of 23%, and a ROE of 24%. Stockopedia gives it a Q (quality) score of 98, V (value) of 214, M (momentum) 90, and an over SR (StockRank) 84.
It has a dividend yield of only 1.5%, and analysts expect a dividend cover of around 4 over the next two years. This suggests that the company sees plenty more room for growth.
Its share cound has been increasing at an acceptable 1% pa over the last few years. The operating margins have averaged 15%. Those margins have been stable, so we’re unlikely to be dealing with a highly cyclical business.
The high ROCE, Q score and operating margins suggest there’s something special going on with the company.
It trades on a PE of 16 (based on a share price of 1338p). This is not a cheap value share, but neither is it expensive given that it is a quality company. The company trades on a FCFY (freecashflow yield) of 6.5%, which is acceptable for me at it clears my hurdle rate of 4.8%. The hurdle rate is based on Terry Smith’s writings. We want to see a FCFY above a desirable theoretical long-bond yield, which Smith says should be the rate of inflation + 1%. Current inflation is 3.8%, giving us a desired floor of 4.8%.
There is a good video that discusses GAMA (not by me) in more detail on Youtube:
A note was issued by Progressive Equity Research on 25 Markch 2024 here: https://www.research-tree.com/companies/uk/telecoms-mobile/gamma-communications-plc/research/progressive-equity-research/progressive-gamma-communications-more-happy-returns/30_f767830e-a121-4209-bb47-563d36d5a583
Some of the points they make:
“Gamma is making good progress in Business, Enterprise and Europe. For those looking at ‘undervalued’ UK equities, Gamma’s growth stands out”.
“we believe that the group is now better positioned to grow in FY24 and beyojnd.”
“The switch-off of the UK public switched telephone network (PSTN) at the end of 2025 has been well signposted. Gamma is well positioned with its own PhoneLine+ product for the micro-businesses that will require new broadband and voice solutions, and this should be a growth opportunity.”
1338p ASX 4313