Cyber-security firm's full-year adj EBITDA expected to be 12% below expectations
Companies: NCC Group plc
The cyber security and risk firm NCC Group has announced that it expects full-year profits to be below previous expectations after three significant contract losses in quick succession left a hole in its FY17 results.
In an H1 trading update released on Tuesday, the FTSE 250 company said it anticipated year-end adj EBITDA to increase by c.5% and to be between £45.5m to £47.5m, below previous guidance.
During the period, NCC turned over £125.8m, a 35% increase on 2015, with organic growth of 18%. This was primarily earned by the Assurance Division which boosted its revenues by 42% (£104.8m).
In H1 adj EBITDA increased 15% to £21.3m, but management's new guidance now suggests the firm will increase it by just 5% for the full-year. Frustratingly for private investors, the company didn't mention its previous guidance, which was forecast by N+1 Singer to be c.£54m (prior to initial contract loss warning) and c.£49m after.
On Tuesday, Singers said that whilst the loss of large contracts was disappointing, it believes that NCC is trading well, with strong opportunities for organic growth.
"The group announced in October that three large contracts had been cancelled in Assurance and that a Fox-IT contract had been deferred, but left full year guidance unchanged at that time. We proactively downgraded our forecasts to FY’17 EBITDA of £49.0m in November. Today’s guidance of £45.5m - £47.5m is c.5% below our revised forecasts.
Today’s update gives investors the clarity required to take a view on the stock post the share price fall in October. We continue to believe that NCC is a rare asset, in an attractive space, and expect the group to return to organic growth in FY’18."
CEO Rob Cotton said the Group had continued to see strong organic growth across the business, with H1 adj EBITDA up 15%. However, he went on to confirm that the business has revised down its full-year forecasts due to contract cancellations:
"In our trading update of 20 October 2016, we stated that we had seen three large unrelated contract cancellations in quick succession and one deferral in the Assurance division...
Whilst our forward visibility remains strong, we now do not expect to make up this profitability in the current financial year. We, therefore, anticipate year-end adjusted EBITDA* to grow by up to 5% and be in the range of £45.5m to £47.5m - less than earlier expectations."
Mr. Cotton stressed that, whilst disappointing, the cancellations don't reflect any structural change:
"We will continue to exploit our leading worldwide position and are expecting to see solid organic growth in both this and in future years in fast growing markets.
"The long-term outlook for our Assurance business is unchanged and we remain confident in the future prospects for both of our divisions."
NCC's share price fell c.7% on Tuesday following the announcement. This follows the 45% plummet after its initial warning regarding the lost contracts.
