On Thursday of this week, this £204m-capitalised Yorkshire-based information technology service provider will be holding its AGM in the City.
Following the mid-August announcement of the group’s full-year results to end-March, I would expect the tone to be one of quiet confidence that better times are ahead.
The Business
Redcentric, which was set up in 1997 and listed on AIM in 2013, today has over 1,000 customers, with some 500 employees operating out of over 11 locations.
It is a digital transformation partner offering cloud, communications, network, and cyber security solutions.
The company’s managed network service solution offers a comprehensive suite of networking solutions expertly managed and closely monitored.
While its services include connectivity, software defined wide area networking (SD-WAN), local area networks (LAN), managed WAN, secure remote access, and others.
The company offers array of meticulously managed cloud services encompassing migration, optimisation, security, and ongoing maintenance of cloud infrastructure.
Its services include cloud consultancy, infrastructure as a service (IaaS), azure, AWS, hybrid cloud, cloud migration, modern workplace 365, and platform-as-a-service (PaaS).
Through its communications services, it offers services in hosted IP telephony; unified communications; omni-channel; sip trunks; call recording, and call reporting.
Latest Results
Announced on Thursday 15th August, the business reported that the year to end-March saw a 15.2% uplift in total revenues at £163.2m (£141.7m), with an 11.8% increase in adjusted operating profits of £9.7m (£8.6m).
Readers will know just how much I like to see increasing annual recurring revenues – well Redcentric reported a very impressive 91.4% (90.7%).
The group in the last couple of years has made a number of strategic acquisitions, the benefit of which will become clearer to investors over the next year or so as integration is finalised.
Tremendous cross-selling opportunities, together with operational cost savings and tight margin control will really begin to shine through.
CEO Peter Brotherton stated that:
"FY24 was a very productive year with all the original integration programmes completed, generating cost savings either in line or slightly ahead of our expectations.
The electricity conservation measures are now yielding very significant volume savings, which combined with secured lower electricity prices from 1 April 2024, are expected to reduce electricity costs by £8.1m in FY25.
The focus for FY25 will be to drive organic revenue, profit and cash flow growth by cross selling the broadened product and solution portfolio into the enlarged customer base, whilst also capitalising on the structural opportunities presented by AI related demand and the recently awarded VMware Pinnacle partnership agreement.
The business is now in a very different place to when I joined in November 2016.
All of the historical issues have been overcome and the acquisitions undertaken in FY22 and FY23 have significantly increased the scale and capability of the business.
Revenues and profits for FY25 are on course to be double what they were pre the acquisitions and solid foundations are now in place for sustainable and profitable growth."
Management Outlook
The business has entered this current year with a significantly enhanced scale, strong organic revenue growth, significantly reduced electricity costs and some very exciting sales prospects.
The group declares that its Management is now focussed on delivering profitable growth to drive improved margins and cash generation, whilst ensuring service levels are maintained to limit customer cancellation and price erosion risks.
The Equity
There are some 158m shares in issue.
The largest holders include Kestrel Investment Partners (20.62%), ND Capital Investments (16.13%), Lombard Odier Asset Management (15.87%), Slater Investments (11.45%), Harwood Capital (10.99%), Chelverton Asset Management (3.66%), GoldenTree Asset Management (3.50%), Janus Henderson Investors (2.52%), Stephens Group Inc (2.02%), Killik Asset Management (1.73%), Brewin Dolphin (1.48%) and Integrated Financial Arrangements (1.29%).
Analyst Views
At Cavendish Capital Markets, its analysts Andrew Darley and Kimberley Carstens have a Price Objective out on the group’s shares at 190p.
For the current-year to end-March 2025 they estimate revenues of £171.3m (£163.2m) with adjusted pre-tax profits more than trebling to £15.4m (£4.2m), hoisting adjusted earnings to 7.1p (1.9p), whilst maintaining its 3.6p dividend per share.
For the coming year they have £179.9m revenues, £19.1m profits, 8.8p earnings and that 3.6p per share dividend.
The year to end March 2027 could see £188.9m sales, £23.7m profits, 10.9p earnings and still the 3.6p dividend per share.
My View
On the face of what I can see, Redcentric is ready to really start pulling in the bigger profits.
The shares, now at 129p, could well move further ahead between now and the end of November, when the group’s Interim Results will be announced.
I now set a Target Price of 160p a share.
(Profile 24.09.24 @ 129p set a Target Price of 160p)
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