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Years of poor financials and stagnant share price spark rethink
Thursday 24 May 2018 Author: Steven Frazer

The shock departure of senior management at KCOM (KCOM) has started tongues wagging that a break-up of the group is on the cards.

Chief finance officer Jane Aikman resigned on 17 May, hot on the heels of chief executive Bill Halbert’s decision to stand down after an 11-year run with the company. Both are staying on until replacements are found.

These announcements caught the market by surprise, coming just weeks after KCOM’s capital markets education day for analysts and investors. It is believed that no hint of the impending departures was given at the event on 1 February.

Speculation is now circling that a management overhaul has taken place designed to arrest years of poor financial performance and a share price that has stagnated for five years.

KCOM is a mishmash of communication network, infrastructure service and enterprise software businesses. It is best-known for running the Hull and East Yorkshire communications network that provides calls and broadband internet to around 200,000 local residents and businesses.

This part of the business provides the meat of KCOM’s profit and cash flow. Transitioning more customers to its fibre-to-the-premises network could drive incremental price increases if customers up their broadband data usage, potentially creating cost savings by switching off the copper connections.

For years KCOM has retained the faith of income investors thanks to the reliable cash flows from its Hull and East Yorkshire network providing the backing for attractive dividends even in the face of pension scheme funding requirements.

But dividend growth is coming under increasing threat amid attempts to grow its enterprise and service businesses. Offloading those parts to concentrate on its Hull and East Yorkshire network could therefore make sense, potentially easing cash pressures and releasing value for shareholders.

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