NCC is turning itself around

NCC (NCC) is a cyber security specialist, and its biggest cyber business is under pressure. The technical assurance services arm, which tests how strong computer systems are under attack, reported a 32 per cent drop in revenue in the six months to November. This was largely caused by a slowdown among US tech clients. 

The division’s struggles dragged down the entire group, which saw revenues fall by 10 per cent in the period to £56.6mn and adjusted operating profit collapse by 63 per cent from £12.9mn to £4.8mn. If these profit figures look lower than expected, it is because management has tweaked its accounting style. While amortisation of acquired intangibles was once adjusted out, it is now included, meaning headline profits are lower than previously indicated.

The big question for NCC is whether its technical assurance arm can turn things around. The latest statement is encouraging. Demand seems to have stabilised after a big drop in early 2023, with revenue only dipping by 5 per cent between H2 2023 and H1 2024, but visibility is admittedly limited. 

Other areas of the business look stronger. Managed services, for example, grew revenue by 15 per cent to £27.8mn, and NCC’s smaller escrow solutions arm has now delivered five consecutive quarters of growth. Meanwhile, the structural growth drivers remain the same – cyber attacks show no sign of going away. 

NCC currently trades on a forward price/earnings ratio of 18.6. This is not cheap, but it is considerably lower than the highs of 2020 and 2021. Meanwhile, there are signs that NCC – with its new leadership team – is starting to turn itself around after a very bruising star to its financial year. A cautious buy. 

Last IC View: Buy, 102p, 27 Sep 2023