33% increase in the dividend with more to come?

Here's my second post in as many days after a self imposed hiatus of several months, and it's another update. The company in question this time is the minnow Aeorema Communications (AEO) which I previously wrote about in July 2019. Here's the blog:-

http://michae1mouse.blogspot.com/2019/07/dividends-can-keep-you-happy-whilst-you.html

So what's happened since that time?

Well most significantly full year results were released 30 Sept, and the share price has risen 46% on well received figures and an encouraging outlook statement. Despite the share price appreciation, I believe that the shares are still significantly undervalued.

Firstly, as anticipated in my previous blog post, the dividend was hiked by a more than healthy 33%. It currently stands at 1p which is a coupon of 2.6% at the current share price of 38p. It should be noted that management have a progressive dividend policy in place.

Revenues were up 40% to £6.7m with a profit after tax of £288,000. Cash in the bank was £2.2m.

Not bad in the context of this company's market cap. still being a mere £3.4m. The P/E ratio is therefore around 12. The FCF for the year was £774,847.

Think about the cash in the bank and cash generated in the context of the current market cap. and the investment case is very compelling. The dividend is covered more than 8.5 times by the FCF.

They had this to say about this year's outlook,

 "Focus remains on sustaining client relationships and effective client acquisition to ensure that a robust pipeline of business is in place. To this end, I am confident of future growth having already secured new client wins in the current financial year including a leading global law firm, a number within the technology sector and a high-profile, established confectionery brand. Another upcoming highlight is set to be the execution of an extraordinary event at MIPCOM in Cannes, an annual trade show for entertainment content, in October for a global media brand. "

The MIPCOM event was for the BBC btw and it's a three year project. I'd urge readers to take time and read their full report:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/AEO/14245785.html

In particular, although this was a very successful year for AEO (as illustrated in the figures above) they say the following:-

"Whilst the Group has delivered an unusually high number of low profit margin events during the year, new events to be delivered in 2020 are expected to have higher gross profit margins."

A share price at least double the current value wouldn't be unreasonable at this stage in my view assuming growth remains on track.

As ever, AIMHO.