2nd Feb 2023 10:49
(Alliance News) - NCC Group PLC shares dropped on Wednesday, as investors mull what could be a worrying outlook for the cybersecurity industry.
Shares in NCC were down 7.5% to 170.62 pence each in London on Wednesday morning, making it the worst FTSE 250 performer.
The company reported that revenue in the six months to November 30 increased 18% to GBP176.6 million from GBP150.1 million a year ago.
Pretax profit jumped 22% to GBP10.3 million from GBP8.4 million. However, Jefferies noted that first half profit came in below its expectations.
It also declared an interim dividend of 1.50 pence, unchanged year-on-year.
Jefferies said that looking ahead, results will be determined by whether the year is first half weighted or second half weighted.
However, NCC said that since the beginning of the second half of its financial year, it has experienced a lengthening of the sales cycle. This is leading to delays in buying decisions, work commencement and therefore revenue recognition. It has been a particular problem in North America and the UK.
Based on this, the company now expects only a single-digit revenue increase on a constant currency basis for all of financial 2023. In financial 2022, NCC reported GBP314.8 million of revenue.
NCC added: "As a result of the current market conditions, we are experiencing a reduction in our utilisation rates and attrition. We are therefore accelerating the implementation of our strategy and reshaping the business, with a proposed reduction in headcount in the near term."
It plans to cut around 7% of its global workforce, mostly in the UK and North America, at a one-off cost of GBP4 million. NCC currently employs more than 2,000 across the globe.
It now expects adjusted operating profit of around GBP47 million, which would be down 2.3% from GBP48.1 million. Without the impact of "strategic investments" adjusted operating profit will be around GBP52 million.
Looking ahead, Shore Capital analyst Robin Speakman said: "NCC is making progress with a return to secular growth trends noted, but with still some cost uncertainty in the short-term, in our view. Forecast conservatism therefore seems appropriate to us.
"We remain mindful of both a changing market dynamic in Escrow services and potential pressure on staff attrition in Assurance. Still, growth continues, and we expect positive long-term results from the CEO's strategic review. Fundamental valuation ratios remain attractive relative to other cyber services businesses," Speakman added.
Jefferies revised its forecast for NCC's financial 2023. It now expects revenue of GBP358.9 million, up 5% from GBP342.8 million, and adjusted Ebit of GBP47.2 million, down 18% from GBP57.4 million.
Looking ahead to financial year 2024, Jefferies upped its revenue forecast by 4% to GBP380.7 million from GBP366.0 million, but lowered its adjusted Ebit forecast by 5% to GBP58.0 million from GBP61.2 million. It said this move is an attempt to "de-risk" the outlook.
In financial 2022, NCC recorded revenue of GBP314.8 million and an Ebit of GBP48.1 million.
Jefferies said its lower profit expectations incorporate management expectations for lower growth and room for GBP5 million worth of investment in the second half of the financial year.
Shore Capital rates NCC at 'buy'. Jefferies also rates NCC at 'buy', but it cut its price target to 245.00p from 260.00p on Thursday morning.
By Sophie Rose, Alliance News reporter
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