Business comms provider Gamma has confirmed a successful IPO on AIM, with 50% of shares being sold to institutions at a sensibly-priced 187p per share, for a £165.2m market capitalisation. A combination of an attractive dividend yield and current organic growth rates way above the peer group average should ensure a solid start to Gamma's life as a public company, says Philip Carse, Principal Analyst, Megabuyte.
Special report by Philip Carse: As expected, Gamma has placed 50% of its shares in public hands, with most existing shareholders selling down. The company itself is not raising new money given a healthy balance sheet and good cash generation; the main aim of the IPO is to raise its profile. The company will have a market capitalisation of £165.2m at the offer price of 187p, or an enterprise value of approximately £145-150m given December 2013 net cash of £14.6m and subsequent cash generation.
The valuation equates to about 8.7x 2013 EBITDA. Current year multiples will be somewhat lower given that, as we reported recently, Gamma enjoyed very strong trading in the first half: revenues up 16% to £83.6m, EBITDA up 42% to £10.9m and post tax profits up 32% to £5.8m. A similar rate of growth for the full year would equate to about 6.2x 2014 EBITDA, at a PE of about 14.2x.
Gamma has also announced the intention to pay a progressive dividend. An indicative £1.75m dividend for the first half, had Gamma been listed then, equates to about £5.25m for a full year, or a prospective yield of 3.2% at the IPO price and a broad 50% profits payout. The company will pay two-thirds of a full year dividend for 2014, despite being only listed for less than three months.
First thoughts
Having tried to IPO in the tail end of 2011, but being deterred by market conditions, we are pleased to see Gamma succeeding this time round. The company marks a quality addition to AIM, with a long track record, good industry positioning and reputation, and starts life with a very decent level of liquidity with a 50% free float.
The IPO has also been sensibly priced; whilst an estimated 6.2x current year EBITDA is below the 7-12x range for peers such as Alternative Networks, Daisy, Maintel, Talk Talk and Redcentric, the PE of 14.2x and prospective dividend yield of about 3.2% are around their average. A combination of an attractive dividend yield and current organic growth rates way above the peer group average should ensure a solid start to Gamma's life as a public company.
Fidelity MD Alan Shraga commented: "This announcement is great news for the channel. Gamma and its partners have worked tirelessly over the last few years and to grow from £60m to £160m is an amazing achievement for our industry."