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AdEPT Telecom plc: THE INVESTMENT CASE

AdEPT Telecom taking big strides as consolidator

The new syndicated debt facility provides increased scale and has a more flexible structure
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INVESTMENT OVERVIEW: ADT The Big Picture
AdEPT is building its internet skill-set through acquisitions

If it ain’t broke don’t fix it and AdEPT Telecom plc (LON:ADT) has no intention of changing its buy-and-build strategy.

In fact, it has just renegotiated its revolving credit facility, after outgrowing its previous one.

Its new five-year revolving credit facility will be for £30mln – twice the size of the old one.

The new syndicated debt facility provides increased scale and has a more flexible structure when compared to the company's previous debt facility agreement, AdEPT said.

The facility will give the company added firepower with which to pursue its highly successful acquisition strategy.

Another storming half

A first contribution from recent acquisition Comms UK helped the telecoms services group lift interim profits by a quarter.

Shareholders also got a 25% hike in the dividend in the half-year results, released in November.

Revenue in the six months to September rose 19% to £16.5mln, while underlying profits [EBITDA] were 20% ahead at £3.5mln.

Allowing for goodwill and other acquisition–related adjustments, pre-tax profits rose by 26% to £1.47mln.

WATCH: AdEPT's Finance Director speaks to Proactive's Stocktube

Comms chips in

Comms UK specialises in internet-based telephony but unlike Adept, which supplies telecoms to 40 councils and other public healthcare groups, its business base is mainly small to medium-sized companies.

That has been a theme of the recent acquisition targets: widening the customer base and taking out duplicated costs.

Once an acquisition completes, most of the operations are taken on by the company’s head office in Fleet.

Centrix, for example, was acquired last year, for its extensive client base and specialist knowledge of the Avaya Aura phone system, a cornerstone of AdEPT’s offering.

As well as bringing in an installed customer base of 300, it broadened the group’s skill-set

Managed services revenues, where it handles the customer’s whole telecoms caboodle, are another fast growing area.

Revenue for this source now accounts for 53% of the total, up from 41% a year ago, and should be further boosted by another acquisition, CAT, in November.

CAT deal follows the blueprint

Bought for an initial consideration of around £1mln and up to £0.95mln dependent on performance, CAT is another well-established Avaya IP telephony specialist.

Again, the support function of the CAT customer base is to be transferred and integrated into AdEPT's existing site in Fleet.

CAT has a high level of recurring revenue and offers a well-developed customer base with which it enjoys long term relationships said AdEPT.

In the year to March 2015 its sales were £1.3mln and profit £0.3mln.

The most recent acquisition came after the new banking facility was arranged, and marks a step change in the company’s strategy, according to AdEPT’s nominated adviser, Northland Capital Markets.

Our IT Department Limited, a specialist provider of information technology (IT) services, is the latest capture, with AdEPT paying an initial cash consideration of £4.75mln.

Further consideration of up to £3.75mln may be payable in cash dependent upon the trading performance of OurIT Group following the acquisition.

AdEPT said the acquisition is expected to enhance its earnings right from the get-go.

Broker expects strong second half

Chairman Wilson said the first half of the financial year had seen improved results in all key areas and a positive contribution from Comms, where revenues grew by 12%.

Northland added that AdEPT highlighted its public and healthcare sector progress, now 29% of total sales and the broker was expecting underlying profits [EBITDA] for the full year of £7.2mln and a dividend of 7.5p.

That was before the acquisition of OurIT. Northland’s forecasts are currently under review.

“AdEPT has long-signalled that the provision of unified telecom services requires a level of IT expertise which matches the requirements of organisations embracing the products and services offered by expert systems, cloud-based and other enhancements. The acquisition of OurIT Group makes AdEPT’s – already established - appreciation of this trend a reality, and increases the scope of its unified offering,” the broker said.

“The expanded debt facility shows that AdEPT has both the aspiration and now the ability to further its strategy, and at a potentially more ambitious scale,” the broker concluded.

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AdEPT Telecom plc Timeline

CN Research
January 09 2017

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