Is Amcom Telecommunications Limited a buy?

Amcom Telecommunications Limited (ASX: AMM) has carved out a niche market for itself in the western half of the continent.

Other telecoms, such as Telstra (ASX: TLS), M2 Telecom (ASX: MTU), TPG  Telecom (ASX: TPM) and iiNet (ASX: IIN), are based on the east coast, where most of their business is, and have a presence in the west. Amcom’s core business is the provision of high-speed data communications over its fibre-optic network in Perth, Adelaide and Darwin.

Amcom is leveraging its existing network to grow organically through uptake of additional services. Two recent acquisitions in BlueFire and L7 Solutions strengthened its managed services and IT solutions. Cross-selling opportunities are also present. Amcom’s fibre network is a wholesale network and is not impacted by the national broadband network.

Amcom comprises three divisions. The Data Networks Division provides high-speed communication products to blue chip corporates, government agencies and other telecommunications providers through the company’s existing fibre network. The Hosted and Cloud Services Division provides customers with a communications platform that provides organisations with all the benefits of seamless communications across multiple devices and promotes the transition from on premise to a cloud-based delivery model.

The IT Services Division revolves around the provision of integration solutions, managed services and related services. The latter also comprises the sale of IT hardware and services, licensing, maintenance and outsources services, including recently acquired L7 Solutions and IP telephony businesses.

The strategy of organic growth is focused on client acquisition for its fibre network and the uptake of additional products from existing clients. Bolt-on acquisitions, similar to the acquisition of BlueFire and L7 Solutions will strengthen its product range and the services offered.

There has been consistent growth over the last five years. Sales have gone from 12 cents per share to 64 cents. Earnings have increased from 2.8 cents per share to 8.4 cents. Dividends have risen from 1.5 cents per share to 5.5 cents. Currently, return on equity is 17.2%, which is excellent for a small-cap company. Debt to equity is 30.8% covered 19.3 times, which does not present any significant risk to shareholders.

Foolish takeaway

As emphasised in the latest Annual General Meeting, Amcom is well positioned for continued growth. Share price growth has been positive measured year by year, rising from a low of 21 cents in 2009 to a high last year of $2.20. Any purchase under $2.00 in 2014 would be good value, especially as growth in the share price has consistently trended upwards in the last five years, and should continue for many years to come.

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