LEADCOM, a real growth company

CS Note in brief...

Highlights
�� LEAD is a telecom services business that specialises in the provision, management and implementation of telecommunications solutions – typically for operators on behalf of the hardware manufacturers such as Nokia and Ericsson. The business floated in April 2005 at 32p per share, and there has subsequently been a very impressive trading performance with a strong set of results in the first half of 2005 and an earnings upgrade from Corporate Synergy Plc for both 2005 and 2006 in September 2005 – this upgrade raised our normalised PBT expectations for 2005 by 26% to $10.2m, 2006’s estimates by 13% to $12.0m and 2007’s by 3.4% to $15.4m. The shares have performed too.

�� On 13 December 2005 LEAD issued a pre-purdah trading statement for the year
ending December 2005 stating that our revised 2005 targets would be achieved. The highlights include the sales coming in marginally ahead of our estimate at between $96m and $97m whilst the normalised PBT margin of 10.5% would deliver our 2005 earnings forecast. Normalised profit will have risen by nearly four fold in 2005.

�� We consider that the most attractive element of LEAD is the strong pipeline – there are presently real signed orders (back-log and frame agreements) for $60m with a further pipeline of potential business amounting to $235m – the traditional conversion rate has been 35% - implying scope for an additional $80m plus of sales; together these would generate sales of over $140m in 2006! See the analysis of the pipeline on the following page. We cannot convey strongly enough the fact that the IPO monies really have enabled this business to do more, and better quality business. This bodes well for future profit growth.

�� The net result is a second material earnings upgrade in 3 months. We lift the
2006 sales target from $108m to $120m (up 11%) and the normalised PBT from
$12.0m to $12.75m (up 6%) – this infers a normalised PBT margin of 10.6%. Of these sales we would expect $55m (46% of the year’s forecast) in the f irst half with $5.75m of normalised PBT in the equivalent period (45% of the year’s forecast).

�� We upgrade 2007 estimates too. We raise our sales target from $125m to $150m
(up 20%) and the normalised PBT from $15.4m to $16.5m (up 7.1%) – a margin rise
from 10.6% to 11.0%. We leave the dividend forecasts unchanged.

�� Our formal 2006 forecasts assume a full tax charge. When we allow for the 15% tax charge the reported EPS forecast for 2006 puts the rating at 8.4x. The EV to EBITDA multiple for 2006 is presently 6.1x. A growing reputation for earnings upgrades, M&A activity in the niche and scope for independent coverage in 2006 make this a share to watch. We expect continued over-performance for the LEAD shares relating to the driven management team, the low PER, high ROCE, respectable yield, strong balance sheet and strong momentum. The future bodes well for LEAD.

*Corporate Synergy Plc acts as Nominated Adviser