Alternative Networks - Finals

I flagged this one up on Monday as looking potentially interesting ahead of today's results.
They are out this morning, as expected, so lets see how they measure up.

To be honest the figures are a bit messy with lots of adjustments requiring 6 note indicators. They were also a bit disappointing as they seem to be behind forecasts at the turnover level £145.8m v £151.1m and more so at the earnings level where they have come in at the bottom of the range at 27.8p on an adjusted basis with the underlying diluted figure being only 23.3p. These compared with the consensus of 29.2p & the corporate estimate from FinnCap of 30.7p, so a 4% to 9% or so miss on those forecasts.

The only saving grace on the numbers as far as I'm concerned was the dividend which was up by 13.1% at a slightly better than expected 16.4p versus the 16.25p consensus. While they reiterated a likely 10% minimum growth rate going forward and their ambition remains to progress towards 15% growth in the medium term. They suggested this rate of increase was paid out on the back of their financial strength. This was demonstrated by their strong cash conversion / generation which enabled them to pay debt down taken on in funding earlier acquisitions faster than they had expected. Thus debt came down from a peak of £41.3m at the time of the acquisitions in 2014 to £18.7m rather than £20m they had forecast earlier this year, where it represents a manageable 1x adjusted EBITDA.

Talking of acquisitions, since they confirmed that the last pair had now been fully integrated and re-branded and with the debt coming down to manageable levels on the back of strong cash flows they may now be able to consider more of these. Indeed in the statement they said that they continue to remain open to acquisition opportunities should they be clearly enhancing to shareholder value and fit their product and capability set. While on the outlook the Company sounded positive when they said:

"2015 has been a good year overall, delivering robust revenue and profit growth whilst completing several major integration and operational improvements projects. The business is in a strong position going forward. The two acquisitions in 2014 and the transformational projects in 2015 have resulted in Alternative Networks becoming an IT Services business with a unified operational structure, a fully invested sales force and a market leading product portfolio, able to deliver end-to-end solutions to a larger customer base. 
 
The improved profit performance in the second half of 2015, together with the high recurring revenue levels in the group, means that the Board approaches the coming year confident that the business can continue to generate good levels of growth in the future. The first weeks of the current financial year show signs that the momentum carried through the previous quarter is continuing and provides sound encouragement."  

Summary & Conclusion
So overall a slightly messy set of numbers which on the face of it seem a little disappointing despite on going growth. In the event it seems this year has been one of consolidation for them as they have integrated the two acquisitions and invested in the business by moving to a new head office and have also undergone a change in management as a long standing director, Edward Spurrier, left in September this year.

They seem confident enough in growth continuing and it would be good to see how the group, in it existing form, can perform in the year ahead, but I guess if they can find a sensibly priced add on acquisition which enhances prospects and earnings then that wouldn't be a bad thing apart from making the numbers hard to compare again.

Talking of numbers, as the Investec forecasts were more on the money for this year I'll use their current numbers of 30.8p of earnings for 2016 which would represent 10.8% growth on this years adjusted diluted earnings. Applying this rate of growth to this years dividend of 16.4p would give a suggested dividend of 18.2p which as it happens it Investec's forecast  and meets their minimum 10% growth suggestion too.

This mornings price of around 440p (+8% to 10% from a weak close yesterday) leaves it on a fairish looking 14.3x with a 4.1% yield. We may have seen the best of the rally in the short term, given figures were low end, but given the attractive yield and decent growth expectations it is the kind of stock I like to hold long term as part of a diversified income portfolio.