Secure growth with NCC

Cyber crime costs UK businesses an estimated £27bn every year, which is equal to the total projected cost of London's Crossrail 2. This backdrop has fuelled strong growth for NCC. Organic sales leapt 19 per cent in the year to 31 May, driving adjusted operating profit up 46 per cent to £38.4m.

Brisk demand for security consulting and software testing drove organic sales up a quarter in the assurance business, which accounts for just over four-fifths of total turnover. Moreover, renewal rates among the division's customers jumped from 83 to 94 per cent, while renewing customers are spending an average of £83,000 each year, a 13 per cent increase. Those gains partly reflect the group's £94m acquisition of threat intelligence specialist Fox-IT in November, financed through a £126m placing and open offer. The deal, which followed on from the £55m acquisition of Accumuli in May 2015, has bolstered NCC's range of threat analysis and fraud detection services. It has also added technical expertise, improved revenue visibility - over half of Fox-IT's sales are recurring - and allowed it to cross-sell to Fox-IT's customers in the Netherlands.

Accumuli's third-party software sales did mean the assurance division's operating margin shrank from about 18 to 15 per cent last financial year. However, management plans to downsize that business, focus on security consulting and widen the margin to 20 per cent in the next few years.

NCC's escrow division has also produced strong growth. Sales were up by a tenth last financial year, which was the fastest rise in a decade. The division, which boasts bumper operating margins north of 55 per cent, delivered top-line growth of over 8 per cent in the UK, 9 per cent in Europe and 20 per cent in the US. It also benefited from renewal rates of nearly 90 per cent and verification sales climbed a fifth. The company's domains business has not been so successful and NCC has decided it's time to cut its losses. Exiting the business resulted in a £13.7m exceptional charge, only £900,000 of which was a cash cost. Coupled with integration and fundraising costs, that meant the company stomached £18.9m in one-off costs in the last financial year.

NCC boasts a stellar track record. It has delivered compounded annual revenue and EPS growth of 24 per cent and 12 per cent, respectively, over the past five years. Its prospects appear stronger than ever, as combined renewals and orders ballooned just over two-thirds to £105m in the last financial year, and management plans to roll out Fox-IT's services globally in the coming months. NCC is also opening new offices in Singapore and Dubai and considering a sizeable office in central London. And it stands to benefit from new European laws around data protection - expected by May 2018 - which will require companies to be transparent about serious data breaches, mitigation and remediation costs or risk being fined. Solid cash generation, net debt of £12.7m and a £110m banking facility also provides ample fire-power for further acquisitions.