Growth stalls at Redcentric

Redcentric (RCN) has a colourful past. Earlier this year, its former chief financial officer, Timothy Coleman, was convicted of making false and misleading statements to the market and was sentenced to five and a half years imprisonment. According to the Financial Conduct Authority, Coleman had overstated Redcentric’s cash position in 2015 and 2016 by around £13mn, thus artificially inflating the group’s share price. When the accounting scandal was revealed, the shares lost more than half of their value. 

The IT service management company has come a long way since then. Its share price has partly recovered and management is now focused on long-term prospects. However, the group is not thriving in a post-Covid world. Its sales growth is seriously patchy, as is its profit record. Recurring revenue – an important metric for companies that offer software as a service – edged up to £83mn in 2022, but it makes up a slightly smaller portion of total sales than in the past at 88.9 per cent.

Management seems to be pinning its hopes on five acquisitions that have “transformed the company”, adding “significant capability” in growth areas such as cyber security. 

It is still early days, but there are some encouraging signs. Redcentric said the market was “subdued” for much of 2022, with its new order intake sitting at just half of pre-Covid levels for the first three quarters. However, several larger-scale projects have now been signed and the group is now “nearing” pre-pandemic order levels. 

Redcentric’s sales record doesn’t inspire confidence, however. Hold. 

Last IC View: Hold, 127p, 18 Nov 2021