The Shearwater Group (LON:SWG) yesterday stated that the continued growth of the global cyber-security market is supported by several key macro-economic trends that reinforce the need for its solutions.
It notes that the technological landscape is advancing at pace, with the rapid deployment of Artificial Intelligence (AI) and a significant increase in decentralised working practices and cloud-based systems, creating more areas of vulnerability for clients.
As a result, the number of cybersecurity breaches continues to rise, with 50% of all businesses and 74% of large businesses having experienced some form of cybersecurity breach or attack in the last 12 months.
As I reported yesterday, Reuters on Monday declared that cyberattacks have cost British businesses around £44bn in lost revenue in the past five years, with 52% of private sector companies reporting at least one attack in that time.
This claim was based upon a report by insurance broker Howden.
Cyberattacks cost businesses 1.9% of their revenue on average, Howden said, with companies generating an annual revenue of over £100m most likely to suffer an attack.
As well as the direct threat to security, businesses are increasingly aware of tightening regulations around data and more severe penalties for companies that experience breaches.
In reaction, companies are increasingly investing in cybersecurity, demonstrated by the rapid growth of the global cybersecurity industry which is estimated to be worth $268bn in 2024, rising to $878bn in the next 10 years.
The Business
Shearwater Group is an award-winning group providing cyber security, managed security and professional advisory solutions to create a safer online environment for organisations and their end-users.
The group's differentiated full-service offering spans identity and access management and data security, cybersecurity solutions and managed security services, and security governance, risk and compliance.
Its growth strategy is focused on building a scalable group that caters to the entire spectrum of cyber security and managed security needs through a focused ‘buy-and-build’ approach.
Yesterday’s Interim Results
In the typically quieter first half to end-September, the performance was in line with expectations, with the Group delivering revenue of £11.3m (H1 FY24: £10.5m) and an adjusted EBITDA loss of £(0.4m) (H1 24: profit of £0.6m).
The group continues to be supported by a healthy balance sheet with cash as at 30 September 2024 of £3.0m (H1 FY24: £2.2m).
CEO Phil Higgins stated that:
"This period has been one of continued progress in a broad range of sectors, building a robust foundation for delivering growth in both revenue and profitability in FY25.
We have achieved significant multi-year wins across our Services division, strengthened relationships with global blue-chip clients and enhanced our products across our Software business.
This momentum has continued into H2, as highlighted by the contract wins secured post period end.
Becoming an approved supplier on the G-Cloud portal marks a significant moment in the Group's strategy, unlocking a multitude of opportunities with government departments as they look to approved providers like Shearwater for their cybersecurity needs.
Our cutting-edge cybersecurity solutions, within the backdrop of a high growth market, position us well to meet evolving demands and deliver long-term value for all stakeholders.
Alongside our interim results, we are delighted to announce a significant $12.8 million deal with a global leader in mobile telecommunications.
This partnership is a testament to the strength of our solutions and our shared commitment to driving innovation.
By enhancing the client's capacity, we are proud to support its growth strategy and the continued rollout of 5G technology.
This win underscores our dedication to delivering value to our clients and solidifies our position as a trusted partner in the telecom sector."
Current Trading and Outlook
Momentum is building through the second half of FY25 highlighted by the two large deals secured post the period-end, supporting the group's ability to deliver results for the full year in line with current market expectations.
Looking to the next half and FY26 the group is looking to invest to ensure the best resources are in place to capitalise on this new growth avenue.
Broker’s View
Despite yesterday’s slightly lower results, analyst Edward Stacey at Cavendish Capital Markets has maintained both his current year estimates and that of his 78p a share Price Objective.
He looks for the year to end-March 2025 to show revenues of £27.6m (£22.6m), helping to swing the group round back into adjusted pre-tax profits of £0.6m (£0.6m loss), generating 2.4p (0.3p) of earnings per share.
Stacey concludes his note stating that Shearwater Group is a company with a unique and differentiated set of capabilities in critical cyber-security applications, and a global blue-chip customer base.
My View – A Warning
It is coming out of the rough and is now ready to play down ‘a fair lane’ going forward.
Recent contract wins, together with its strong pipeline for the second half-year, should help to support the group’s share price, currently just 33.50p, valuing the business at only £9m.
This group, I must warn readers, has only once performed close to my set Target Prices, so perhaps it is best to gain a ‘second opinion’ if you are thinking of following my views, but I have to say that I do like the business and consider it to be undervalued.
(Profile 14.04.20 @ 245p set a Target Price of 310p)
(Profile 23.03.22 @ 118p set a Target Price of 145p)
(Profile 06.11.23 @ 35p set a Target Price of 45p*)
(Profile 25.07.24 @ 45p set a Target Price of 56p)
(Asterisks * denote that Target Prices have been achieved since Profile publication)
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