Gamma H1 2025: German deals turbo‑charge growth, guidance intact
Gamma Communications delivered a tidy first half, with the German acquisitions doing the heavy lifting and the UK holding the line in a tricky SME market. Management says full‑year Adjusted EBITDA is in line with market expectations and Adjusted EPS is slightly ahead – a reassuring signal when many peers are trimming guidance.
Quick refresher: Adjusted EBITDA is a profit measure before interest, tax, depreciation and amortisation, excluding one‑off items. It’s a cleaner read on underlying trading.
Headline numbers investors care about
| Metric (six months to 30 June) | H1 2025 | H1 2024 | Change |
|---|---|---|---|
| Revenue | £316.6m | £282.5m | +12% |
| Gross profit | £172.0m | £145.8m | +18% (margin up to 54%) |
| Adjusted EBITDA | £70.9m | £62.2m | +14% |
| Profit before tax | £43.5m | £48.5m | -10% (exceptional costs) |
| Adjusted PBT | £61.0m | £56.0m | +9% |
| EPS (diluted) | 34.1p | 36.7p | -7% |
| Adjusted EPS (diluted) | 47.9p | 42.5p | +13% |
| Adjusted cash conversion | 90% | 100% | – |
| Net (debt)/cash | £(21.6)m | £142.9m | Shift to modest net debt |
| Interim dividend per share | 7.4p | 6.5p | +14% |
Two lines move in opposite directions: statutory PBT and EPS dip due to £7.3m of one‑off acquisition and listing costs, while the adjusted measures climb double‑digits. The market focuses on the adjusted run‑rate, so the mix here is more positive than the headline PBT suggests.
Germany is the growth engine – and why that matters
The big swing factor is Germany. Starface (acquired February) and Placetel are performing strongly, with both delivering double‑digit proforma revenue growth. Germany’s gross profit jumped to £34.4m from £9.8m – a 251% rise – with a hefty 70.1% gross margin. The enlarged German unit now represents about 20% of Group gross profit and holds 565k cloud seats.
Why it matters: Germany is Europe’s largest business comms market but remains under‑penetrated for cloud. Gamma is buying scale into a long runway. If management can build Germany to UK‑like scale over time, the Group’s earnings profile gets meaningfully larger and more diversified.
UK: resilient, but feeling the macro and PSTN shift
UK SME trends are softer after the late‑2024 budget dented confidence. Gamma Business gross profit was flat at £97.4m, with customers gravitating to lower‑priced options such as PhoneLine+. Cloud net adds in the UK were 23k in the half, down from 48k in H1 2024, though Teams voice enablement users rose sharply (+56k in the UK).
There are also structural headwinds:
- PSTN switch‑off is pushing legacy copper broadband to fibre, which carries lower gross profit – a £1.5m drag in H1 2025, with similar impacts expected each half until end‑2026.
- Ethernet price competition in Enterprise clipped gross profit by £1.0m in H1 2025, with a further £3.0m expected in FY26.
Gamma is countering with a broader product set (Cisco Collaboration Suite, Operator Connect International, upgraded PhoneLine+) and a cost review. A UK restructuring of up to 5% of Group staff is underway, targeting £6‑8m annual savings from FY26, with a one‑off £3m cost in 2025 (exceptional).
Seats, suites and the platform: signs of scale
- Total Cloud seats rose by 587k to 1.8m since June 2024 (up 50%).
- Cisco Collaboration Suite users hit 28k at June, up 75% in the half, with additions running at over 2,000 per month by August.
- Voice‑enabled Microsoft Teams users in the UK climbed to 523k, up 12% in the half.
- PhoneLine+ seats reached 45k, up 32% in the half, reflecting demand for lower‑cost options.
The new single portal architecture is a quiet but important enabler: UK channel partners can now order Horizon, PhoneLine+, Cisco and iPECS in one place, and “Operator Connect International” is live across 14 countries. Faster device onboarding should also ease migrations and bulk wins.
Cash, buybacks and the balance sheet
Adjusted cash conversion stayed healthy at 90%. Gamma completed a £45.1m share buyback during the period (after £27.3m in 2024) and lifted the interim dividend to 7.4p. Unsurprisingly, after the Starface deal and buyback, the Group moved to net debt of £21.6m, with £47.0m drawn on a £130m revolving credit facility. With 90% recurring revenue and strong cash generation, leverage looks manageable, and management highlights capacity to deleverage quickly.
Segment view: what drove the mix
- Gamma Business (UK SME): revenue £186.0m (+1%), gross profit £97.4m (flat). Lower ARPU products and fibre mix diluted margin, partially offset by inflationary price rises.
- Gamma Enterprise: revenue £66.5m (+9%), gross profit £30.9m (+7%). BrightCloud added £3.6m revenue and £2.0m gross profit; renewals faced fibre pricing pressure and some customer decision delays.
- Germany: revenue £49.1m (+125%), gross profit £34.4m (+251%). Acquisitions plus solid organic growth; margin uplift from proprietary software economics.
Guidance and consensus: what to expect next
For FY25, the Board expects Adjusted EBITDA in line with current market expectations and Adjusted EPS slightly ahead. As at 8 September 2025, company‑compiled consensus for FY25 is Adjusted EBITDA of £139.4m‑£143.1m and Adjusted EPS of 89.9p‑93.9p. With H1 Adjusted EBITDA at £70.9m and Adjusted EPS at 47.9p, Gamma is tracking broadly to plan.
Into FY26, management flags around £6m of UK gross profit headwinds from PSTN migration and ethernet pricing, but expects growth initiatives and cost actions to offset and underpin Adjusted EBITDA.
My take: the good, the watch‑outs, the catalysts
Positives
- Germany is delivering as advertised – big gross margin uplift and scale, with under‑penetration offering multi‑year growth.
- Group quality remains high: 90% recurring revenue, strong cash conversion, and robust adjusted earnings growth (+13% Adjusted EPS).
- Clear capital returns alongside M&A: 14% dividend hike and £45.1m buyback completed.
Watch‑outs
- UK SME demand is subdued and product mix is skewing cheaper, pressuring ARPU in the near term.
- PSTN switch‑off and fibre price wars are known drags through 2026.
- Statutory earnings are noisy this year due to acquisition and Main Market listing costs.
Potential catalysts
- Further German scale – organic seat adds and potential bolt‑ons in connectivity, Enterprise and Service Provider segments.
- UK reacceleration if SME confidence improves and upsell resumes, helped by Cisco and AI‑enabled features (AI receptionist due in Q4).
- Benefits from the unified portal and pan‑European offers improving channel velocity.
Bottom line
This is a textbook “buy to build” update: acquisitions are integrating well, margins are improving at Group level, and guidance is held. The UK faces cyclical and regulatory headwinds, but Gamma is adapting its offer and taking costs out. With modest leverage, solid cash generation and a growing German platform, the medium‑term equity story looks stronger today than a year ago – and the dividend and buyback show confidence under the bonnet.
