- Stock falls after ‘significant risk’ to earnings warning
- Escrow revenues have been shrinking for four years
- Borrowing costs jump 350% on higher interest rates
Cyber security consultancy NCC (NCC) is facing stiffening headwinds that could knock earnings and send the share price down. This is the claim from analysts at investment bank Berenberg, who have cut forecasts and lowered the target price on the stock.
NCC’s share price has been drifting down since September, declining from 240p to today’s (17 Jan) 196.6p, after a 5% fall in early trading.
‘With the company expecting to only be slightly ahead of the previous year’s operating profits for the first half of fiscal 2023, we think there is a lot of ground to cover in the second half to perform at least in line with consensus forecasts,’ Berenberg’s analyst wrote in a note to clients.
NCC’s financial year runs until the end of May.
CONSULTANCY GOOD, ESCROW BAD
NCC provides advanced cybersecurity consultancy and escrow services, which includes things like backing up of important software code. The two units are called Assurance and Software Resilience respectively.
‘We think NCC’s cybersecurity consultancy, Assurance, has good double-digit growth prospects in the medium term but we remain unconvinced about both the opportunity within the escrow business, Software Resilience, and the group’s strategy to return this to growth.’
BORROWING COSTS SURGING
Higher interest expenses are also exerting pressure on earnings, putting them at ‘significant risk,’ said Berenberg. The analysts have cut forecasts by circa 12% this year, with soaring finance costs from higher interest rates a big factor. Debt funding expenses are now estimated at £7 million this year, up from a £2 million calculation previously.
‘Given the difficult macro backdrop, we think there could be further headwinds ahead, especially in selling more escrow contracts, which has already faced four years of de-growth.’
Berenberg lowered its price target on the shares from 260p to 240p.
New chief executive Mike Maddison, appointed in May 2022, is due to present a strategy update on 2 February.
