NCC Group PLC

NCC Group PLC (LON: NCC) is an FTSE 250 Index listed leading independent global cyber security and resilience adviser that serves over 1,500 clients worldwide.

The Company had paid an interim dividend of 1.50 pence per share on 04 March 2022, while the ex-dividend date was 17 February 2022.

Rationale for Valuation – SPECULATIVE BUY at GBX 185.00

• Decent Financial Performance: The Company’s top-line revenue rose by around 10.7%, while the gross profit jumped by approximately 17.1% during H1 FY22.
• Technical Indicator: From a technical standpoint, the stock price is trading above the 20-days exponential moving average of GBX 183.06, indicating a bullish price momentum.
• Acquisition Benefits: The acquisition of IPM completed on 07 June 2021 had transformed the global Software Resilience business with a healthy 54% year on year growth in Escrow-as-a-Service sales during H1 FY22.
• Strong UK GDP: According to the Office for National Statistics, the UK GDP grew by 0.8% in month-on-month terms in January 2022 after a 0.2% decline in December 2021.

Key Risks

• Increase in Net Debt: The Company had witnessed a substantial year on year increase in net debt during H1 FY22.
• Federal Reserve Meeting: The Federal Reserve meeting scheduled for 16 March 2022 may result in the first interest rate hike since 2018. Thus, it may create pressure on global Equities.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

H1 FY22 Financial Highlights (for the 6-month period ended 30 November 2021, as on 27 January 2022)

 (Source: LSE Website)

• Adjusting Operating Margin: The adjusted operating margin remained 13.5% during H1 FY22.
• Top-Line Business: The Company reported decent growth in revenue of 10.7% in H1 FY22 to £150.1 million.

One Year Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative) 

Conclusion

NCC delivered a decent performance in H1 FY22, with expectations of higher revenue growth in FY22 compared to FY21, partially offset by increased global costs from inflationary pressures and a resumption in travel and office usage. The medium-term objective of the Company remains intact with double-digit revenue growth in Assurance and sustainable revenue growth in Software Resilience. The stock made a 52-week high and low of GBX 348.00 and GBX 162.80, respectively.

Based on the acquisition benefits, decent financial performance during H1 FY22, and support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” recommendation on NCC Group PLC at the closing market price of GBX 185.00 (as on 15 March 2022), with lower double-digit upside potential based on 20.01x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’ 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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