Blackfriar: KCom sending out strong signals after its fall and rise

The stock market can be a bemusing place, and at times, a downright illogical one.

Telecoms group KCom has been witness to its volatility and exuberance over the years.

Back in early 2000 at the height of the dot-com boom, shares in Kingston Communications, as it was then known, topped £17. The Hull-based company was valued at around £5bn and for a short while was a member of the FTSE100 index of leading shares.

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Then the bubble burst, and by late 2008, its shares had plunged to a 9.69p low. Debt laden, loss-making and losing sales rapidly, investors feared for its future.

But after three years of painful restructuring, the company is now on an even keel and commanding a more reasonable value.

Its shares closed at 69p yesterday, giving KCom a market value of around £355m. Even so, for a company which has been so overvalued in the past, the latest share price appears a touch conservative.

Its shares dipped two per cent on Tuesday despite it reporting a 24 per cent surge in annual pre-tax profits to £51.1m. Top line revenues may still be falling as KCom quits non-core work, but its underlying business is growing. Executive chairman Bill Halbert says this year should see overall revenue growth.

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KCom remains a rare beast: a smallish but diverse telecoms group able to offer services to big businesses and households alike.

Meanwhile, the company continues its long track record of innovation – with cash generation helping fund investment. Its fibre optics upgrade to KC’s Hull and East Yorkshire broadband network offers speeds of up to 100Mbps, putting it on a par with Virgin Media and BT’s fastest products.

Beverley, the first town fitted with its new fibre-to-the-home broadband, has seen speeds of 200Mbps.

Halbert says the upgrade is “future-proofed”, and could allow for speeds of up to 400Mbps.

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Meanwhile, its Kcom arm, which serves the likes of Asda and Morrisons, has grown its order book and is taking market share.

It’s rapidly building a name for itself as the leading player in the nascent public services networks (PSN) industry – where councils, hospitals, police and other public sector bodies share computer and telephony services to cut costs. Of the last four contracts awarded, it has won three.

In a telecoms market which is running hard to stand still, KCom’s progress is not trivial. Even so, its shares have fallen about 19 per cent from their August 2011 peak.

Analysts believe there is much more to come from the company. Liberum analysts say the shares are worth 80p, Espirito Santo reckon it’s fair value at 100p and FinnCap analysts have a 110p target price.

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Halbert this week gave the company another boost by pledging to stay with it for at least another year. With his steady hand on the tiller, Blackfriar believes KCom’s prospects look bright.

How do you turn a 22 per cent plunge in half-year profits into a three per cent rise in annual profits?

Step forward pork supplier Cranswick, which reported its second best ever annual trading profit this week despite its inauspicious first half.

While the cost of raw materials fell in the second half and more consumers switched to the ‘alternative white meat’, the Hull-based company said much of its turnaround was due to a surge in exports. Cranswick has doubled overseas sales to £37m over the past year. The company’s chief operating officer Adam Couch, who will take over as chief executive when Bernard Hoggarth steps down in August, said exports account for just three per cent of sales at the moment, but this is expected to rise to between five and eight per cent.

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Forget Greece and the battered eurozone, Cranswick’s export markets are much further afield.

You have to admire a Yorkshire-based company that can sell ribs to the Yanks. All the ribs produced at Cranswick’s Yorkshire site are now exported to America.

But the most interesting export market for Cranswick is China and the Far East.

Until last week Cranswick was exporting offal, trotters, ears and other parts of the ‘fifth quarter’ which British consumers do not eat to China through the grey market.

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But now Britain will be able to sell British pork directly to China under a landmark £50m deal designed to boost trade for British food and farming businesses.

While fifth quarter sales have boomed in China, Cranswick is seeing increasing demand for more expensive cuts. As the Chinese become richer there is increasing demand for a more Western diet.

Now Cranswick is looking to gain approval to export to Australia. If it manages to get to the next stage and reach New Zealand, it really would be a feather in the company’s cap.

UK lamb farmers have long bemoaned the influx of New Zealand lamb. Now maybe there’s a chance for Yorkshire pig farmers to get their own back.