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Redcentric (RCN:AIM) 187.75p

Gain to date: 4.3%

Previous Shares view: Buy at 194.75p, 8 Oct 2015

Investors might well be left scratching their heads, we at Shares are bemused. Interim results from managed services communications and IT supplier Redcentric (RCN:AIM) were pretty much bang on track yet the stock is off 4.5% to 187.75p since the figures on 9 November. The answer seems to be higher net debt of £16.5 million, and a slightly poorer cash flow performance, both a consequence of April’s £12 million Calyx acquisition. Neither looks an issue to us. Integration benefits will come through in the coming months while solid cash generation (£9.4 million underlying in the period) will help quickly pay down borrowings.

Plays update REDCENTRIC 121115

Redcentric, a Play of the Week on 27 August at 180p, continues to look well-placed in the mid-market space, 15% headline revenue growth translates into 8% organic, and important underlying recurring income (81% of £54 million revenue) increased 12%, providing the sort of visibility many businesses would envy. With most of its £70 million loan facilities still untapped, expect further forays into the M&A space, which should please shareholders given the company’s splendid track record to date.

Execution of the growth plan is first rate and even at 250p, the March 2017 price to earnings (PE) multiple would be a deserved 20.8. We remain positive. (SFr)

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