Gamma Communications reports solid first-half performance

Gamma Communications reported a robust first-half financial performance on Tuesday, with significant growth across several key metrics.

The AIM-traded company recorded a 9% increase in revenue to £256.2m for the six months ended 30 June, up from £234.7m during the same period in 2022.

Gross profit also grew by 9% to £131.2m, while adjusted EBITDA also saw a parallel increase of 9%, reaching £56.5m, compared to £51.9m in the first half of the prior year.

The company reported high levels of recurring revenue, amounting to £229.7m, making up 90% of total revenue, up from £208.7m and 89% of total revenue in the same period last year.

Gamma Business, primarily driven by its unified communications-as-a-service (UCaaS) portfolio, demonstrated strong revenue growth, backed by targeted price rises.

The board said gross profit for the segment increased 8% to £86.8m.

On the other hand, Gamma Enterprise saw a 6% increase in gross profit to £25.4m, although it experienced a slight decrease in gross margin, attributed to higher hardware sales, which typically come with lower margins.

The European Business segment showed significant growth, with a reported gross profit increase of 17% to £19m.

On a constant currency basis and after alignment adjustments, the comparable growth was 7%.

The results also highlighted a growth trend in Gamma’s voice enablement products, particularly those supporting Microsoft Teams through Operator Connect and MS Teams Direct Routing.

It said the attachment rates for ‘bolt-ons’ purchasable alongside the core cloud PBX product, Horizon, continued to increase, supporting average revenue per user.

Adjusted earnings per share (EPS) for the half-year increased 5% to 37.5p, impacted by a change in the UK statutory tax rate.

Had the prior year's effective tax rate been applied, the growth in earnings per share would have been 11%.

The company also reported a cash conversion rate of 101%, primarily due to favourable working capital movements.

Looking ahead, following a strong first-half performance, Gamma said it expected growth to continue into the second half of the year.

The group said it now anticipated that adjusted EBITDA and adjusted earnings per share would be in the top half of the range of market expectations.

“We continue to deliver good financial growth and our broadened product set is resonating with channel partners and enterprise customers alike,” said chief executive officer Andrew Belshaw.

“In the UK, the impending PSTN switch off has led to good early growth in our PhoneLine+ product.

“Outside the UK, we have worked hard to improve the underlying performance in our European businesses and have made good progress.”

Belshaw said the firm had seen “excellent” cash conversion in the period, adding that the strength of its balance sheet had enabled the company to continue to acquire capability, whether through product development or acquisition.

“We have recently broadened our offering into the adjacent managed cyber security sector through the acquisition of Satisnet.

“We continue to see mergers and acquisitions as a way to supplement our organic growth and capabilities.

“Our resilient business model allows us to look forward with confidence.”

At 1053 BST, shares in Gamma Communications were up 1.12% at 1,080p.

Reporting by Josh White for Sharecast.com.