NCC rises to meet the cyber-risk challenge

Ransomware is now an “endemic” problem for global businesses, according to cybersecurity firm NCC (NCC). While it’s difficult to know exactly how many cyberattacks take place in a given year, it has been predicted that these crimes could cost the global economy some $10.5tn annually by 2025. 

It is, in other words, a highly profitable time to be in the business of fending off cyberattacks – as evidenced in NCC’s full-year results. The Manchester-headquartered firm reported significant upticks in both revenue and pre-tax profits for 2022. Growth was particularly strong in its Software Resilience division, which benefited from the acquisition of data manager Iron Mountain's intellectual property management (IPM) business.

The addition contributed £20.2mn of revenue to NCC, taking the rate of growth in Software Resilience to 53.8 per cent. The group’s operating profit doubled to £34.7mn following an improvement in its gross margin (slightly offset by administrative expenses related to the IPM acquisition).

Underlying gross margin in the group’s Assurance division – which accounted for almost £259mn in total turnover – shrunk slightly by 0.4 percentage points. According to management, this was because of investment in technical talent.

NCC’s global headcount increased by almost 22 per cent in FY 2022, which broker Peel Hunt said is evidence of its ability to manage adverse employment dynamics. “In conversations with management, we understand that day-rate [increases] are aligned to the pay-rises, which provides near-term margin comfort,” wrote analysts at the investment bank in a note.

FactSet broker consensus puts the company’s FY 2023 price-to-earnings ratio at a modest 14.6 times. With shares currently trading just above NCC’s 52-week low, now could be the time to invest in a business with growth potential. Buy.

Last IC View: Buy, 206p, 19 May 2022