Bold investors yesterday added nearly £40m to the value of Thus after the Scottish telecoms company reported annual trading figures ahead of City forecasts.
The Glasgow company, whose shares are widely held north of the border because of its historic relationship with ScottishPower, nevertheless remained tight lipped on when it expects to pay a dividend. The company reiterated that it expects to chalk up its maiden operating profit in 2007-08, but declined to speculate on when it will move into the black at the pre-tax level.
Thus, which provides voice, data and internet services, competes with the likes of BT and Cable & Wireless in a corporate telecoms market that continues to be plagued by overcapacity and falling prices.
The company said it remained cautious on pricing and the structure of a highly-fragmented UK market, but added that its "managed solution" contracts - major long-term deals combining services for large corporate clients - would underpin sales.
Thus reported pre-tax losses of £15m for the year to March 31, against a deficit of £28.3m in 2006. Income climbed 52% to £533m, boosted by the acquisition of two smaller telecoms groups, Your Communications and Legend. Revenues from continuing operations rose 5%.
The company focused on a headline profit up 14% to £42.9m, stated before interest, tax, depreciation and amortisation, and an operating loss before restructuring costs which fell to £9.5m from £11.6m last time.
At the post-tax level, Thus posted a profit of £83.9m, partly because of the proceeds from the sale of its Demon Netherlands internet business and also through the recognition of a deferred tax asset.
"This has been a highly successful year for Thus," commented chief executive Bill Allan. "The integration of the two acquisitions has proceeded ahead of plan, with increased synergy savings for less cost than originally anticipated. Contract momentum for next-generation services has accelerated in the second half, with some 55% of our variable gross margin now being derived from next-generation customers."
Allan added that Thus remains interested in fresh acquisitions if the right opportunities arise.
Investors were heartened by Allan's forecast, which buoyed the share price - although, there has been a 10-for-one consolidation, and the price has tumbled in recent years from the dizzy heights of 800p.
Nonetheless, shares in Thus, which demerged from ScottishPower in 1999 and was harshly criticised at last year's annual meeting for its recent lacklustre performance, yesterday climbed more than 12%, or 21p, to 190.5p, valuing the company at £349m.
"Thus appears well-positioned in a tough market," Citigroup commented in a research note. "(The) balance between new and traditional services appears to be improving. The ultimate test is whether improved mix translates into accelerating growth and improved margin."
In the last three months Thus has signed "next-generation" contracts together worth £200m with, among others, Highland Council, HSBC and local authorities in the Borders. Yesterday it unveiled a £13.6m deal with United Utilities.
In 2007, the managed solutions business saw a 30% increase in revenues to £95m, posting operating profits of £18.9m.
Data and telecoms, which aims at smaller and medium-sized businesses, boosted revenues by 53% to £312.5m after a full-year contribution from both acquisitions.
Thus also launched new products under the Demon brand last year, including business broadband and internet Voice Over Internet Protocol, as its internet revenues increased 22% to £84.7m. However, operating profits fell from £27.7m to £23.1m as the division suffered from a decline in dial-up internet revenues and more aggressive pricing for broadband services.
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