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Shares in AIM-listed AdEPT Telecom (LSE:ADT), a leading independent provider of voice and data telecommunications services in the UK were recommended at 54p on my Nifty Fifty website before Christmas becoming the first constituent of what we term the penny share ( sub £20 million market cap) portfolio. Following news earlier this week on the dividend the shares now trade at 68-73p so Nifty Fifty readers are well ahead. A decent investment in this one and the annual sub is already recouped. But the shares still offer good value and here is why.
The news out this week concerned dividends. A 0.50p per share dividend announced in in the interim report in 2011 and paid in April 2012 represented a maiden payment from the company and this was increased by 50%, to 0.75p per share (£158,006), at the half year stage this time around – that to be paid on 12th April to shareholders that were on the register on 22nd March. The company has now announced that it is to recommend a final dividend of 0.75p per share in respect of the year ending 31st March 2013; representing a tripling of the dividend for the year. It added “subject to shareholder approval of the dividend at the Annual General Meeting, it is expected that the dividend will be paid in October 2013. Further details will be announced at the time of the release of the company’s final results”.
Based on past experience, we can expect a trading update from AdEPT in early May, with the results statement following in July. However, this announcement offers further confidence that the story of operating resilience, cash generation and debt reduction continues here and means a current dividend yield of a respectable 2.2%, with the company having previously talked of “a progressive dividend policy”.
You can find a detailed free to view analysis of Adept HERE
In the initial write-up it was noted that this is a business which has thrown off more than £2 million of net cash in each of its last two years and that a further re-rating was likely as it is gradually realised that a rating on an earnings basis is becoming valid as debt nears being cleared – net debt having being reduced to £4.39 million at the 30th September 2012 half-year stage. Given this level in the context of the cash generation, the company’s judgment that it is now appropriate to slightly re-align the balance between the pace of debt reduction and the payment of dividends looks an understandable one.
My guess is that the company’s debt will, notwithstanding the increased dividend payments, be eradicated by September 2014 – in other words in just eighteen months’ time. I would hope that this would clear the way for earnings enhancement either via share buybacks or via bolt on acquisitions.
A target price of 95p per share – based on an 8x multiple of annual net cash flow of £2.5 million continues to look realistic here. As such, at 73p to buy there is still clear potential for decent capital gains (plus dividends).
Tom Winnifrith writes for 10 US and UK websites. You can follow all his free to access material via twitter @tomwinnifrith or via his own website www.TomWinnifrith.com which also contains his non financial material – life from a libertarian small state perspective.
Tom’s premium website is the Nifty Fifty. It is co-written with Steve Moore who was formerly the senior writer at t1ps. While at t1ps (the site Tom founded in 2000) the two men served up an average gain per share tip of 42.7% over 12 years and 241 tips. They are joined on the Nifty Fifty by the infamous bear raider Lucian Miers. For more details of this product where you find great tips like Adept and great shorting ideas from Lucian go HERE
