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Into The Black For Cambridge Player 3 April



REDCENTRIC, the Cambridge based business which came into being following a demerger from Redstone, is a company that caught my eye yesterday.

This came on the back of its latest acquisition, which appears to have gone down well with the market.

I haven’t looked at Redcentric at all in the past, so given its purchase of the IT business Calyx Managed Services for £12m from MXC Capital, I thought it worth delving a little deeper in order to gauge what the growth potential may be.

 Redcentric came to the market back in April of 2013 where its businesses were listed as those of providing infrastructure and network services, software-as-a-service (SaaS) as well as IP telephony.   


However, by November of that year the company acquired the entire issued share capital of InTechnology Managed Services for £65m in cash, which effectively constituted a reverse takeover.

IMS which was already providing managed network and data along with hosting and voice telephony solutions, would certainly have looked a potentially decent fit.


The premise, was largely one of the enlarged business becoming a major provider within the mid-market for the management of end-to-end services, backed up by its own substantial infrastructure and network, where the combined entity boasted an impressive cloud platform.


No doubt there would also have been a few sceptics at the time, but looking at the share price performance since then, it has been a steady heading Northwards, interrupted by a few dips along the way.

At present, the shares are sitting at £1.48p against the twelve month high of £1.54p and a low of £1.08p and where the market cap is £206m.


Clearly progress has been made within the business, which has seen deals with the likes of a £1.5m project with the Salvation Army where it provided a full UK wide Network and services to more than one thousand locations. While additionally last year, it also saw a £5m deal over two years undertaken for a range of services including desktop infrastructure for a client that is partnered to the NHS.

More recently though and perhaps an even more compelling endorsement for the business came from the delivery of a new high-speed wireless local area network for the MOD in association with partner Serco.


This saw the company involved in the provision and installation of over 500 wireless access points and 25km of fibre optics at the MOD Training Academy for those serving with the Armed Forces, along with the MOD, Civil Service personnel and other Departments.


By all accounts it was a pretty sizeable project which came with strict time limits but which the company appears to have achieved successfully.

"This was no ordinary enterprise wireless installation, with unique challenges to manage such as the size, scope and special nature of the physical environment, the timings and considerations of having to work around a live body of staff and students and the precise requirements of the MOD," said Andy Mills, the firm's sales director."

The Defence Academy now has a start-of-the-art infrastructure that will underpin innovative learning strategies now and well into the future."


 But, what of the investment prospects and current expectations, which given the previous examples, perhaps give a taster of the growth potential on offer.

Last year, the company delivered revenue of £58m which saw EBITDA of £7m, but resulted in a pre-tax loss of £2.6m. However, it subsequently proposed a maiden dividend, sounding a confident note on a progressive policy going forward.

By the time of the Interim Results for 2015 were released in November of last year, Redcentric had seemingly demonstrated further improvement, delivering a pre-tax profit of £3.9m on revenue that jumped from a previous £21m to £46.8m as the benefits of the enlarged group began to feed through.  


Organic growth looked impressive enough too at 11% for the period with the important element of recurring revenue also increased.

For the full year, Broker FinnCap has pre-tax profits of £16m pencilled in with EPS of 9p rising to £20m and 11.6p for next year, although N+1 Singer is slightly more conservative.


Taking the middle ground, then the shares trade of a PER of 17 falling to 15, which on the bare face of things may indicate that they are probably priced about right.

However, the most recent statement in the form of a Trading Update from the company sounded positive enough, with EBITDA said to be comfortably in line with market expectations along with strong cash flow and debt reduction ahead of releasing its full year results in June.


Again recurring revenue is said to be high and along with other positives the company stated that it is set to maintain its growth momentum.


Although I am not rushing out to buy the shares right now, not least as there is a pretty awful spread, I do  intend to keep a close eye on prospects and will attempt to initiate a visit with a view to hopefully, conducting an interview with  management.

Now boasting a broadening business and range, the growth prospects look impressive enough and that is without the latest purchase which the board believes will be immediately earnings enhancing and where its services and range of customers are deemed as an excellent strategic addition.


Hopefully, Redcentric will be receptive to the proposal of a visit, which may result in my doing something a little more in-depth than this initial look.  



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