Amcom delivers

Amcom boosts dividend and reports 23% profit growth in FY13.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published August 14, 2013 7:18 am AEST

Amcom Telecommunications (ASX: AMM) has delivered its 11th consecutive year of net profit after tax (NPAT) growth above 20%. NPAT before significant items for FY13 rose by 23% to $20.8 million, and earnings per share increased by 22% to 8.5 cents per share.

The profit gains were realised on revenue growth of 16%, indicating that margins increased during the year. Additionally, the company announced a final dividend of 3.5 cents per share, fully franked, taking the full year payout to 5.5 cents, up 10% from FY12. Based on the current share price around $1.97, this represents a yield of 2.8%.

Amcom's share price has risen strongly over the past 12 months, from $1.11 in September 2012 to a high of $2.20 in May earlier this year, as investors have finally taken notice of the strong, adaptable business model that has delivered strong growth for over 10 years. The company operates an extensive fibre optic network servicing businesses around Australia with a range of communication and IT services.

Amcom generates around two-thirds of revenue from annuity (or recurring) payments from businesses that require cloud solutions, managed IT services, IP voice solutions, and access to data and internet services. Annuity revenue is preferable for IT companies as retaining customers is less costly than sourcing new ones, and once locked into the Amcom ecosystem, customers can be sold additional services as 'add-ons'.

Amcom gave a positive outlook for FY14, with the company expecting strong growth in cloud services and its Hosted Collaboration Services partnership with Cisco Systems (Nasdaq: CSCO) announced in February. The company has low debt and plenty of cash, with gearing at 9% at the end of FY13. Amcom may look to utilise spare cash through acquisitions, as a number of IT companies struggle with business confidence and spending remaining subdued on the lead up to the federal election in September.

Foolish takeaway

Amcom is an established IT and communications provider that has generated NPAT growth above 20% for 11 consecutive years. Investors have started to take notice of the business in the past 12 months, pushing the share price up nearly 100% as its main competitors in the IT sector struggle.

Amcom has increased its dividend payout and forecast another strong year in FY14. While Foolish investors will know that past performance is not an indicator of future performance, Amcom has a talented management team and should outperform over the medium term if business confidence and spending improves in FY14 following the election.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned in this article.

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