Maintel – recurring growth theme

Maintel is one of the UK’s leading telecommunications providers. It is a prodigious cash generator and is on course for another record performance. Though in its 20th year of operation, the group only joined AIM in 2004 at 98p and has enjoyed solid profits growth, thanks to solid demand for its services.

Based near Waterloo, the largest operation is the maintenance and equipment arm, which offers maintenance, service and support of office-based voice and data kit. With a nationwide presence, Maintel services Avaya, Siemens, Mitel, Panasonic and Samsung equipment. Maintel also partners with most of the leading Tier 1 telecoms companies.

With a field base of 100 engineers, it is able to provide a nationwide presence – something few peers can match. Indeed, this has helped Maintel maintain a client base of 4,500 customers across 12,000 sites. The public sector is also a big buyer of its services – this area accounts for 16 per cent of revenues and spans the police to the NHS.

The maintenance arm provides the bedrock to the business, and a large chunk of the annual £13.2 maintenance base. Last year Maintel signed a three-year partnership deal with Westcon, a division of US giant Datatec.
This added £600,000 of annualised revenue and 1,400 customers; moreover, Maintel is the preferred maintainer for any new clients secured by Westcon.

Another smart move was the acquisition of certain assets and business from Redstone last October for £1.6 million. This brings £2 million of annual maintenance from 600 contracts. The move has further cemented their relationship with both Avaya and Siemens, while bringing additional sales and network services opportunities by targeting the client base.

Maintel also supplies and installs voice and data equipment. Though this was hit in 2009, last year it achieved a 32 per cent hike in sales to £4.7 million. Half of the increase was due to a one-off lumpy contract but Maintel was
still able to win a number of medium-sized orders.

The network services arm sells a number of services, which include line rental, data connectivity, internet access and IP telephony solutions. By providing these products Maintel is able to complement its maintenance and equipment business, thereby working more closely with its customer base.

Amiable chief executive Eddie Buxton joined the group in 2008. He says, ‘We are a complete communications company with a diverse range of clients.’ Further organic growth is on the cards, but Buxton is also on the lookout for earnings accretive, bolt-on acquisitions, particularly in the data and mobile space.

Maintel is highly cash generative, so should have £4 million of net cash by the end of 2011, a solid platform to finance a deal. In the absence of corporate activity Maintel has also been a consistent buyer of its own shares (295,000 bought back last year) to help enhance EPS.

Maintel has a more than twice-covered dividend and sports a prospective yield of 4.2 per cent at the current price – not bad compared to current bank rates.

Though Maintel has a limited private investor following, it has attracted a number of good institutions such as Marlborough Special Situations, Herald Investment Management and Octopus. Chairman John Booth also holds a sizeable 26 per cent stake, so the free float is limited.

The shares trade on eleven times forward earnings – a rating which is far too mean for a growth stock with an excellent track record. Maintel has a significant recurring income stream that is very sticky and has a habit of delivering on expectations. With current trading brisk we rate the shares as a buy.