New investment trust has the scope to pay juicy dividends
Investors are in line for a three or four-fold jump in the dividend this year from technology managed services specialist Redcentric (RCN:AIM). This could mean a payout of around 4p, equivalent to a very respectable 3.4% yield for what is also an exciting growth play.
The forthcoming finals, for the 12 months ending 31 March 2014, should confirm a robust performance with the year-end trading update (31 Mar) reporting an outturn ‘comfortably in line’ with market expectations. This implies that the firm might modestly beat consensus forecasts for pre-tax profit of £7.6 million on £53 million to £55 million of revenues.
The £168 million cap is on track to declare a maiden dividend of 1p for 2014, but such is the potential of firm’s highly visible recurring revenues to grow that this could quickly ramp up given its cash-generative nature. Andrew Darley, analyst at finnCap, predicts a 7.6% free cashflow yield for the period to March 2015.
Last year’s £65 million cash acquisition of InTechnology (18 Nov ‘13) improved revenue visibility. Even before the deal, 70% of Redcentric’s revenues were recurring, but this is set to rise to 80% to 85% going forwards given that all of the target’s revenues are recurring which means that Darley is confident that dividends will be substantially raised going forward, forecasting a 3p per share payout for March 2015. N+1 Singer is even more optimistic, with a 4p payout pencilled in, implying a 3.4% dividend yield on the higher figure at the current 117p share price.
Redcentric supplies more than 2,000 clients with on-site and mobile managed IT solutions over proprietary networks. Products are sourced from a field of more than 30 applications and infrastructure partners, including Cisco Systems (CSCO:NDQ), IBM (IBM:NYSE) and Virgin Media Business.
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Blended organic and acquisitive growth and a hefty payout yield should spark a rerating to 135p or more.