Gamma Communications (LSE: GAMA) is arguably one of the UK’s best growth shares. Since its Initial Public Offering (IPO) a little under a decade ago, the AIM-listed digital communications company’s share price has risen about 825% (turning £2k into about £18.5k).
Earlier this month, Gamma posted its results for the six-month period ended 30 June. And there was some exciting news in the report that could potentially send the stock higher.
Strong H1 results
Gamma’s H1 results were good. For the period, revenue was up a healthy 10% year on year to £282.5m (with recurring revenue of 89%). Meanwhile, adjusted earnings per share came in at 42.5p, up 13%.
On the back of these results, the company increased its H1 dividend by an impressive 14%. That kind of increase suggests management’s confident about the future.
Exciting news
What jumped out at me in the results however, was that Gamma said that it’s “beginning to consider” a move to the London Stock Exchange’s Main Market. It added that it would provide a further update in January 2025 following engagement with the group’s largest shareholders.
This is big news, in my view. Because if the company was to move to the Main Market, it could open up a whole new shareholder base. All of a sudden, a ton of UK portfolio managers would be able to buy the stock for their funds. This could push the share price up significantly.
I definitely think professional portfolio managers would be interested in investing in the company. As I noted earlier, this company has a great track record when it comes to generating wealth for investors.
And currently, the valuation looks attractive. At present, the forward-looking P/E ratio is just 18.8 which is quite low relative to the growth the company is generating (Deutsche Bank has a price target that’s 30% higher than the current share price).
A future FTSE 250 stock?
It’s worth noting that the company – which currently has a market-cap of £1.6bn – would probably join the mid-cap FTSE 250 if it did come to the Main Market. This would lead to buying from index funds that are tracking the index.
So overall, I see this statement as a big development.
Long-term potential
Now, obviously, there’s no guarantee Gamma shares will actually move the Main Market. The group may discuss the move with its shareholders and decide that it’s better off staying on the AIM (where regulatory demands are lower).
And that’s not the only risk here. Another’s weak economic conditions. This backdrop could lead to lower growth and share price volatility.
All things considered however, I think this stock – which I hold – has a lot of investment appeal. I see it as a good play on the digital transformation theme and I think investors should consider buying it today.
