Shares of accident management company Redde (LSE: REDD) increased by up to 8% in early trade after full year results exceeded previous expectations. Adjusted pretax profit rose to £11.9m from £4.3m last year, while the firm has over-delivered on its cash collection targets resulting in improved cashflow.
The board declared a final dividend of 3.5p per share, taking the full year dividend to 6.9p (yield 10%). “Redde has a robust, profitable, cash generative business capable of sustaining attractive dividends,” the chief executive, Martin Ward, commented.
The group’s dividend policy is to distribute as much profit as it can to shareholders — so long as there is sufficient cash available. Redde’s total net cash at 30 June 2014 was £16.8m, up from £1.1m in 2013.
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Redde said that the new financial year has started well and noted that following the December share placing there is £24.8m available for investment. The pipeline of business at recent acquisition NewLaw is growing and the group added that it will invest in opportunities when there is a “quality strategic fit”.
NewLaw contributed £8.9m in turnover in the four months since acquisition.
Whether Redde can develop into a first rate legal services business remains to be seen. Until then the gigantic dividend yield probably isn’t sustainable.
