Shearwater Group – final results due this Friday could well beat expectations yet again

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Shearwater Group – final results due this Friday could well beat expectations yet again

The question is could we strike a small vein of gold with this group?

This company was formerly known as Aurum Mining, but in 2017 changed its name to the Shearwater Group (LON:SWG).

Later this week it will be reporting its final results for the year to end March and the hope is that the cyber security group will be beating market expectations yet again.

The Business

The company’s full service offering spans identity and access management and data security, cybersecurity solutions and managed security services, as well as security governance, risk and compliance.

Through a focused ‘buy-to-build’ approach, the group has a growth strategy that is focused upon building a scalable group offering an entire spectrum of cyber security and managed security needs.

It serves customers in some 46 countries across the globe, across a broad spectrum of industries.

Operation Segments

The group operates through two main segments – Software (13.6% of group sales) and Services (86.4% of group sales) – it has five primary businesses, Brookcourt Solutions, GeoLang, Pentest, SecurEnvoy and Xcina Consulting.

Brookcourt Solutions delivers cyber security, network monitoring technologies and managed security services to help secure and protect an organisation’s critical infrastructure. 

GeoLang delivers data discovery, data extraction and data loss prevention solutions, services and technologies to discover, classify and protect sensitive data and information in the cloud and on-premise.

Pentest provides research-led penetration testing, red teaming, and offensive security consultancy services designed to uncover IT security vulnerabilities, support ongoing information security efforts, and to increase the digital resilience of client organisations.

SecurEnvoy provide trusted identity and access management solutions to millions of users in real-time. Across five continents, its customers benefit from rapid deployments that scale through instant provision, simplicity of use and ease of management.

Xcina Consulting provides business and technology risk assurance and advisory services in support of organisational resilience.

On sales per region basis the UK makes up some 73.7% of sales, Europe 21.6%, North America 3.7% and the Rest of the World just 1%.

The Equity

There are 23.82m shares in issue.

The larger holders include Schroder Investment Management (13.2%), Secarma Group (12.3%), Phil Higgins, CEO, (9.31%), D Stacey (8.83%), David Williams, Chmn, (6.80%), Killik & Co (3.98%), S Watts (3.75%), SpreadEx (1.11%), Robin Southwell, NExec, (0.65%) and Stephen Ball, NExec, (0.50%).

It is interesting to note that the second largest holder in the group’s equity is Secarma Group Ltd, the Manchester-based cybersecurity consultancy.

Year End Trading Update – “the potential for our business is evident”

In late April the group issued its Year End Trading Update and provided revenue guidance for the financial year ended 31 March 2022.

Following a strong second half of trading, the group stated that it expected to report revenue up some 12% to over £35.5m (£31.8m).

It guided that adjusted EBITDA could be in excess of £4.2m (£3.7m).

The revenue growth came from a mix of strong renewals from long term clients, in addition to a number of significant new contract wins in the group’s Services division.

With the Update the group’s CEO Phil Higgins stated that:

“I am delighted to report a strong performance for the group, with both revenue and Adjusted EBITDA growth anticipated to be ahead of expectations. Our long-standing clients have continued to extend their business with us, a testament to the strength of our offering, and we have also won work with new customers looking to fortify their organisational resilience in today’s uncertain world.

We have returned to a revenue growth trajectory, underpinned by a strong financial position, and we remain excited for what the future holds.”

While Chairman David Williams said that:

“It is pleasing to see group wide efforts paying off with the delivery of another set of market-beating numbers. The potential for our business is evident.”

Broker’s View – 200p ‘fair value’

Simon Strong, analyst at Cenkos Securities, rated the group’s shares as a Buy, with a ‘fair value’ of 200p a share.

His estimate for the last year was £35.5m sales and an adjusted EBITDA of £4.2m (£3.7m) giving an adjusted earnings per share figure of 11.8p (10.4p).

Looking into the current year his figures are for £37.4m revenues and an EBITDA of £4.8m, worth 13.7p in earnings.

Analysts Ian Robertson and Gareth Evans at Progressive Equity Research look for adjusted EBITDA earnings of 11.9p for last year and 14.1p for this year.

My View – short-term opportunity

I would believe that both companies will be revisiting their current year estimates after this week’s finals statement.

My first Profile on the group was at the start of Covid-19, a period that subsequently saw the shares fall away before the start of the Ukraine war hit them back even further, with 70p its lowest at the start of March.

The way that the shares have responded to the End Year Update is a pointer to further good news boosting them even higher.

It will take some motoring to get anywhere near my first Target Price, but my most recent aim should be achieved within days.

I see them reacting well to this Friday’s good news and subsequent analyst upgrades.

The shares closed at 139p on Friday night, which I consider offers short-term punters a quick opportunity.

(Profile 14.04.20 @ 245p set a Target Price of 310p)

(Profile 23.03.22 @ 118p set a Target Price of 145p)

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