Confident KCom signals growth in divisions

The Hull-based group, which operates its Kingston Communications domestic telecoms business in and around Hull, plus a business services arm across the country, said pre-tax profits surged 74.4 per cent to 22m in the six months to the end of September.

However, revenues slid 7.6 per cent to 194.8m as the group continued to quit low-margin re-selling and break-fix work.

Shares in the group lifted 1.46 per cent to 52.25p yesterday as the group hiked its interim dividend from 0.5p per share to 1.1p.

The group recently signed a 200m new banking facility, expiring in 2015. KCom also axed its final salary pension scheme in July, which it said helped put the business on a sound financial footing.

Executive chairman Bill Halbert said the group is delivering on the restructuring target he set on his appointment two years ago.

"We have completed what we committed to in that two-year transformation programme," he said.

"The very first thing we did was cut the dividend. This takes the dividend above where it was before we cut it."

KCom yesterday committed to increasing its full-year dividend by at least 10 per cent a year for the next two years, "reflecting confidence in continuing earnings and cash generation".

Mr Halbert said while KCom's total group revenue figure may not show immediate growth due to continual action on low-margin contracts, the underlying business will grow.

"We are now targeting organic growth in all four of our operating brands," said Mr Halbert.

KCom, its business services arm serving big businesses and local authorities, is the "largest growth opportunity" by virtue of its current low market penetration, said Mr Halbert.

This business saw sales slide 8.8 per cent to 134.3m, but underlying earnings increase by 18 per cent to 12.6m.

It has just renewed a contract with British Airways, which will increase its work with the airline. Mr Halbert expects the division's short-term growth to come from winning more work with existing customers.

"We're in a very strong position to expand our share of spend with existing customers," he said.

Kingston Communications, the group's domestic telecoms arm, will increasingly expand into neighbouring areas, added Mr Halbert.

The group is looking to unbundle exchanges east of Hull in Withernsea and Hornsea, and envisages gaining a proportion of the 30,000 potential customers in commuter towns and villages surrounding Hull.

The group recently launched packages of services – dubbed bundles – after communications watchdog Ofcom lifted a ban. This allows it to bundle packages of two or more services, such as telephone and internet, and is already seeing some take-up.

Kingston Communications is also investing 3m in its copper network, which should mean universal broadband in Hull. Mr Halbert said once complete all customers will have access to at least 2MG broadband, while 60 per cent will have access to 10MG internet. "We're expanding in areas where the brand is still recognised," said Mr Halbert. "More services and small geographic expansion should see growth."

Kingston Communications and its small business Eclipse division saw sales slide 3.7 per cent to 62.5m. But Mr Halbert said its action should shift this to single-digit growth.

A favourite with analysts

ANALYSTS at Liberum Capital highlighted the "escalating returns to shareholders", reiterating a "buy" rating.

"KCom is, in our view, a rare beast," said Liberum analysts. "Its KC, Hull-based business offers the cash generation of an incumbent telco – but one without the competitive pressure of its incumbent peers.

"In addition, its KCom managed services business, in contrast to some of its peers, is cash generative courtesy of management's restructuring efforts."

FinnCap analysts said the results were "just the ticket".

"We have long highlighted that the weakness in the KCom investment case was the dividend, which underrated the stock."