Cybercrime is increasing at a quite frenetic pace and so too is the business of countering its impact – today Mark Watson-Mitchell takes another look at NCC Group whose figures are due shortly – and sets a new Target Price
Yesterday the news agency Reuters declared that cyberattacks have cost British businesses around £44bn in lost revenue in the past five years, with 52% of private sector companies reporting at least one attack in that time.
This claim was based upon a report by insurance broker Howden.
Cyberattacks cost businesses 1.9% of their revenue on average, Howden said, with companies generating an annual revenue of over £100m most likely to suffer an attack.
Cyber security is a massive business and there are literally hundreds of companies within that sector offering their services.
That demand will grow significantly, especially with the now almost daily threat of Chinese and Russian parties creating mayhem across the globe.
There are quite a number of UK-quoted companies providing methods of countering the increasingly frequent cyber attacks on not just national bodies like airports, hospitals, government departments, and military bases but also to companies across the globe.
One such business that I like is the NCC Group (LON:NCC), the £150m-capitalised business with two leading segments – people-powered, tech-enabled cybersecurity; and market-leading software escrow.
The group will be announcing its 16-months results to end-September on Tuesday 10th December.
The Business
NCC Group is a people-powered, tech-enabled global cyber security and software escrow business.
Driven by a collective purpose to create a more secure digital future, some 2,200 colleagues across Europe, North America, and Asia Pacific harness their collective
insight, intelligence, and innovation to deliver cyber resilience solutions for both public and private sector clients globally.
With decades of experience and a rich heritage, the NCC Group states that it is committed to developing sustainable solutions that continue to meet client's current and future cybersecurity challenges.
The company leverages its collective insight and intelligence to power end-to-end cyber services that protect its clients from cyber threat.
Its segments include Cyber Security and Escode.
NCC services include incident response, technical assurance, managed services, consulting and implementation, threat intelligence and Escode.
The incident response services include incident readiness, cyber incident response management and incident response recovery.
Its technical assurance services include application security; network infrastructure, architecture and container security; cryptography and encryption, and cloud security services.
The Escode services include software escrow, software-as-a-service (saas) escrow, escrow agreements and escrow verifications.
The company’s threat intelligence services include threat intelligence and online exposure monitoring.
Recent Result Announcements
At the start of August, the group reported its unaudited results for the 12 months to end-May showing that its adjusted EBITDA was ahead of market expectations.
It reported total revenue for the period slightly lower at £324.4m (£335.1m), while its adjusted EBITDA was 7.4% better at £42.1m (£39.2m).
The company stated that the group's transformation journey was progressing well and already delivering results; however, work continues.
It has enhanced its capabilities in Cyber and diversified its routes to market, developed differentiated brands and implemented a global resourcing and scheduling model enabled by a new delivery and operating centre.
The company noted that it had made that strategic progress whilst successfully reducing its operating costs and improving its gross margin.
In the Trading Update issued on Thursday 12th September, the company stated that in the four months to the end of September, it expected that the overall revenue for the period is likely to come in better than expectations at £104m, with the group adjusted operating profit to be some £6m.
Management Comment
At that time CEO Mike Maddison stated that:
"We have seen the benefit to gross margin from the actions we took over 12 months ago to align our global delivery and operational headcount.
We continue to simplify our business, aligning ourselves to our client needs in a competitive marketplace, to generate profitable revenue growth and sustainable gross margins.
Our transformation journey is ongoing, and we continue to build out our core Cyber Security capabilities and our separate Escode re-branded business, which both provide future growth opportunities to continue to enhance shareholder value."
The Equity
There are some 314.7m shares in issue.
The larger holders include Aberforth Partners (8.39%), Odyssean Capital (6.05%), Canaccord Genuity Wealth (4.57%), Schroder Investment Management (4.38%), Legal & General Investment Management (4.33%), CACEIS Bank (4.27%), Slater Investments (4.20%), The Wellcome Trust (Investment Management) (4.03%), Richard Griffiths (3.50%), and The Vanguard Group (3.36%).
Analyst Views
Some six analysts follow the company, with the majority rating the group’s shares as a Buy.
The consensus average Price Objective is 179p for its shares, with the lowest call at 135p, the highest at 200p.
At Zeus Capital, their analyst Bob Liao considers that this group’s shares have a ‘fair value of 167p, while stating that they have an upside valuation potential of 245p.
Ahead of the 16-month results being announced on Tuesday 10th December, he states that the market has yet to accept the full turnaround potential of NCC.
My View
Since I first Profiled the group four years ago, its shares have been up to 344p and more than hitting my previous Target Price.
On the face of it NCC Group shares today may look to be too expensive.
However, the group is still undergoing its turnaround process, and it could well be worth buying into this recovery phase.
We shall have to wait to see exactly what transpires in the results that are due to be announced on Tuesday 10th December.
In the meantime, its shares at the current 157p attractively value the group at just under a £500m-capitalisation.
I now set a new Target Price of 185p.
(Profile 02.01.20 @ 229p set a Target Price of 300p*)
(Profile 26.11.24 @ 157p set a Target Price of 185p)
(Asterisk * denotes that Target Price has been achieved since Profile publication)
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