NCC Group Plc

NCC Group Plc (LON: NCC) is a cybersecurity and risk mitigation Company. The Company works with businesses to safeguard their brand and customer information by helping businesses to identify, assess, mitigate & respond to the risks they face.

Investment Highlights - NCC Group Plc – Hold at GBX 180.01

• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Book Value multiples of the NCC Group Plc are currently lower as compared to the corresponding multiples of the Software & IT Services industry. It reflects, shares are undervalued as compared to the industry.
• In the last six months, the Company delivered a substantial return of ~ 29.32% and delivered significantly higher returns compared to the benchmark Index (FTSE-all Share Index).
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 29 level), which means the stock price could increase in the short term.

Key Risks

• The Company’s operational performance and reputation are impacted by the threat of external fraud and cyber-attack.
• The remote working environment amid pandemic presents heightened operational risks. 

Financial Highlights – FY2020 (31 May 2020)

(Source: Annual Report, Company Website) 

• For the financial year 2020, the financial performance has declined, while long-term prospects for cybersecurity services market remained excellent as covid-19 impact accelerated the adoption of cloud services.
• The demand for the product and services were impacted by covid-19 pandemic, while the Company believes strong growth opportunity once the economy normalises.
• The Company’s stability is boosted the by strong financial performance from Software Resilience business, with improved Cyber Professional Services.
• NCC continues to transform business for successfully navigating from the disruption caused by the covid-19 pandemic. The Company maintained a strong balance sheet and preserved technical capacity and capability.

One Year Share Price Chart

Daily Chart as of 21 September 2020, before the market close (Source: Refinitiv, Thomson Reuters).

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. While the revenue increased, the bottom-line performance declined, with lower profitability margins. Despite the lower financial performance, the Company expects global cybersecurity services market to growth once the economy normalises. The Company has a robust customer base and supported 65 Fortune 500 companies and 89 FTSE 350 customers, including Facebook, Google and Zoom.

In FY2020, around £15 million of sales order delivery were impacted by covid-19, and the Company expects demand through FY 2021 will also be impacted. To tackle the impact of the pandemic, the Company has maintained strong cash discipline with approximately 117% cash conversion and significantly reduced net debt to £4.2 million on a like-for-like basis (FY2019: £20.2 million). The Company expects growth prospects for the cyber resilience market to be excellent for long-term growth. The stock made a 52-week low and high of GBX 125.40 and GBX 236.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for NCC Group Plc at the current price of GBX 180.01 (as on 21 September 2020, before the market close at 2:45 PM GMT+1) and will recommend fresh buying at the right time. 

iomart group Plc

iomart Group Plc (LON: IOM) is a Software & Computer Services Company, providing cloud services and secure managed hosting services.

Investment Highlights - iomart Group Plc – Hold at GBX 315.00

• As per valuation metrics, EV/EBITDA Price/Cash Flow and Price/Book Value multiples of the iomart Group Plc are currently lower as compared to the corresponding multiples of the Software & IT Services industry. It reflects, shares are undervalued as compared to the industry.
• In the last six months, the Company delivered a substantial return of ~ 20.28% and delivered significantly higher returns compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 23 level), which means the stock price could increase in the short term.

  Key Risks

• Excessive dependency on the channel partners could have an impact on the operational performance of the Company.
• The market and technological changes could further hamper the business of the Company.

Recent News

On 10 September 2020, iomart Group announced that its CEO, Angus MacSween, has decided to step down from his position effective from 1 October 2020, and will be replaced by Reece Donovan, current COO (Chief Operating Officer).

Financial & Operational Highlights – FY 2020 (31 March 2020)

(Source: Annual Report, Company Website)

• For the financial year 2020, driven by organic growth for the period, the revenue surged by 9%, adjusted EBITDA benefited from the transition to IFRS 16 Leases.
• The Cash flow from operations for FY2020 stood at £41.3 million, with a strong profit-to-cash conversion ratio of 95%.
• The cash position as on 31 March 2020 stood at £15.5 million with net debt of £57.6 million.
• The organic growth rate of Cloud Services business increased to 6% in FY2020 (FY2019: 2%) and increased investment in sales engine has resulted in securing of multi-year and multi-million-pound contracts with future revenue visibility.
• The Company maintained a market-leading position in term of profitability with low customer attrition. The recent acquisitions help them to offer better quality services to the customer base.

One Year Share Price Chart

Daily Chart as of 21 September 2020, before the market close (Source: Refinitiv, Thomson Reuters).

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company claims to have a strong business model, providing support in the tough times due to Covid-19. The Company had shown good financial performance in the financial year 2020. Driven by good growth from all the businesses in which the Company operates, the Group’s revenue and the profitability have improved for the current period.

The trading in the first two months of FY2021 stood in line with management’s expectations. However, the timing of new projects is likely to be more uncertain. Overall, the Company made good progress and is looking for further growth, both organically and through strategic acquisitions. The Company also have many projects under pipeline, which will help the Company to achieve strong organic growth. The stock made a 52-week low and high of GBX 219.50 and GBX 409.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for iomart group Plc at the current price of GBX 315.00 (as on 21 September 2020, before the market close at 3:06 PM GMT+1) and will recommend fresh buying at the right time. 

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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