AdEPT Telecom

Acquisitive Tunbridge-Wells-based telecommunications play AdEPT, which debuted on AIM in February with a £8.2m funding, dialled in impressive figures for the year to March, demonstrating growth on all fronts.

Turnover at the ‘non-network’ provider of fixed line calls, line rental and broadband, sparked up 33% to more than £11.5m, driven by acquisitions made during the year. Pre-tax profits rang 99% north to £469,000 on the back of a rise in gross margins to 40.4% (34.7%) despite pricing pressure in a competitive market.

Chairman and founder Roger Wilson flagged up the success of the strategy of acquiring companies (or customer bases) in a highly fragmented market and integrating them swiftly without significantly increasing group costs. AdEPT’s ability to quickly migrate customer bases to its automated back-office systems boosts the profitability of the acquired customer base. During the year, four acquisitions were completed and integrated, all within 6 weeks, taking the total to 13 since the company was formed. This year, AdEPT has also acquired 10,000 business customers from Fizz Telecom for £3.2m cash, taking the total number of acquisitions made since float to three.

Acquisitions are also altering the customer profile for the better, with small business customers making up an increased 67% of revenues last year, up from 37% a year earlier, a figure that has now risen to 80% plus. In contrast to lower spend, higher churn residential customers, business clients bring more stability to the customer base and some 70% of AdEPT's business customers now take line rental, which boosts revenue and reduces churn due to the long-term contracts that they sign.

For March 2007, investors might expect sales of circa £21.6m and profits of £1.4m, giving a forward p/e of only 12.5. Cross selling opportunities and further exciting acquisitions add to AdEPT’s investment allure. Buy.