AI CAN DRIVE SYS ON A RETURN TO GROWTH - 09/12/25

Time for me to take another look here at SysGroup, not least as I hold shares in the company, which last week released its Interim Results.

Having spoken in the past with Executive Chairman and major shareholder Heejae Chae, this time round, I caught up with both him and CFO Owen Phillips at Sys’s London office located close to the river in Bermondsey.

Sys, which also has offices in Edinburgh, Manchester and Newport is now perhaps best described as a Managed IT services and Cybersecurity solutions business that has been moving through a period of significant transition over the last couple of years.

This has very much been driven by Heejae, with a major focus on AI forging the direction of the business into one that has been pivoting away from its historic revenue generator, that being data hosting which is being commoditised and declining.

For those that are completely unfamiliar with the business and to what has been evolving here, there are previous articles on the blog, although a cursory look now at the recent performance is unlikely to fire the imagination or ignite much enthusiasm, as revenue and earnings declined over the last couple of years.

That however, masks the structural changes that have been made, which includes a much healthier balance sheet, which was boosted by a significant raise of circa £11m in the summer of last year.

This resulted in the company sporting a positive net cash position following the payment of earn-outs related to a previous acquisition.

Additionally, and importantly, there has been significant investment across the group, with a notable focus leveraging the innovations in AI tools and integrating them into the workflows.

These create custom solutions that are already demonstrating tangible benefits which are now assisting in a return to a growth mode.

Before taking a look at that and what it entails, I feel it is worth recapping on Heejae, who I first became aware of back in 2009, where he joined the board of Scapa, a then bombed out business with its shares residing very much on the critical list.

Heejae, who had already demonstrated impressive success at Volex, took up the mantle of CEO and subsequently transformed Scapa from a sickly provider of industrial adhesives and bonding products largely to the construction industry to one that diversified into the healthcare market.

Touching on that past with Heejae last week, it is clear there is a similar playbook on offer here, as the Chairman recalled the mess that Scapa had been in, but also the major opportunities he identified which saw that company evolve into one of supplying advanced wound care and medical adhesives along with other novel products.

Suffice to say, Scapa’s shares emerged from critical care, rising from circa 17p from when he joined the company to a high ten years later of £3.44p, before being acquired at £2.21p in 2021.

Of course, although just as with buying shares or funds, past performance is no guarantee to future success, from a personal perspective I am happy and comfortable to hold what for me is a sizable position.

Whilst the very mention of AI perhaps understandably conjures up a degree of scepticism with many perceived to be jumping on a bandwagon, it is fair to say that it is a subject which Heejae has been actively speaking of from the outset of joining Sys.

Indeed, my first conversation with him was very much focused on AI and it was clear that there was a theme ready to play out in order to strategically drive the business to both embrace and capture opportunities.

Today, there is clearly a high degree of excitement from both Heejae and Owen around the subject matter, but not merely on what they believe it will bring in the future, but what is apparent now.

Having joined Sys in June of 2023 and invested £2m of his own money for a major stake, the company has, under his tenure, successfully embraced the unprecedented innovations in AI to be the early adopter in the MSP industry.

Focused on what are probably best described as mid-market customers, Heejae informed me that Sys is the only UK operator in the space with such an AI platform that is perfect for the company’s focus on the extensive Managed Services arena.

This embraces and delivers analytics, implementation and support along with operational automation through AI right across the cybersecurity space.

As an integral part of the operational process within its platform, I was told that extensive records and history of customers' problems and issues that have been solved and delivered over time, can be indexed, searched and profiled by the AI driven system to accelerate and augment its ability to resolve the issues.

This not only dramatically speeds up the process of problem solving, but operationally, also results in a reduction of headcount, providing for a more focused and efficient operational base.

The overall result from such an AI driven approach has resulted in a significant shift to a consultative end-end offering that both Exec’s see as already delivering tangible results with the performance and satisfaction rate greatly improved across the business.

In the company’s embedded workflows, the adoption of automation has resulted in a significant 78% improvement in the ticket backlog, which could be anything from resetting a password to a more complex security issue.

Additionally, in the six months just reported, the service desk numbers reduced from 36 to 22 engineers, whilst throughput per engineer has increased by an impressive 17%.

CFO Owen Phillips is happy to acknowledge though, that investors now want to see a real delivery on the growth and profitability fronts as opposed to the current position in absence and added that they are very much concentrated and determined to deliver on that.

Like Heejae, Owen has been involved with previous success stories, so does not appear to be one that is happy to flirt with a business without prospects.

Indeed, he was at Matillion, a then sixty people Manchester start-up operation in the tech space which grew rapidly during his time and where it now stands as a billion-dollar business.

Such experience would appear to align well to Heejae’s own track record and Owen further pointed out that he wouldn’t have taken up the role in March of last year if hadn’t been attracted to, or believed in the businesses prospects.

Although revenue as a whole as revealed in the Interim Results saw another but smaller decline due to the dropping away of VAR, the Managed Services revenue increased by 4.6% whilst it was also 10% ahead of Q1 2026. (the 10% growth being for the entire revenue not just managed services).

That should provide optimism for ongoing delivery on the strategy, where with Managed Services now accounting for 92% of group revenue the prospects have also been boosted by an acquisition made last year in the form of Crossword Consulting.

Bought for a snip at just £311k, further highlighting Heejae’s ability to identify the right opportunities, the business has provided a notable boost to Sys’s cybersecurity services.

Not only has it added highly skilled consultants, it has also brought with it high-recurring revenue from larger major clients such as FTSE companies.

Heejae, points to Crossword as proving to be a great purchase which provides for opportunities going forwards and synergies across the group to drive growth.

Whilst organic growth is key, the Chairman is happy to reaffirm its strategy on further bolt-on-buys, where he said that it is very much on the agenda, with opportunities existing in what he sees as buyer’s market in a fragmented space.

As for financial strength, the company looks comfortable with a significant gross cash position of £8.7m and net cash of £3.6m, whilst there is also a £4.8m RCF of which £3.3m is undrawn.

Regarding the first half numbers for full year 2026, Sys saw revenue of £9.9m, that in turn delivered adjusted EBITDA of £0.2m which sees broker Zeus forecasting revenue of £20.5m for the full year with a small adjusted PBT of £0.2m.

Next year expectations are for revenue of £22.6m with adjusted PBT increasing to £0.6m with net cash forecast to stand at £2.8m.

Speaking on the current economic backdrop Heejae stresses that not surprisingly it remains tough, where over the last few years many companies have delayed on committing to spend.  

But equally, he pointed out that with the continuing and evolving cyber threats, businesses can only delay for so long and the services Sys offers are not optional but necessities to function.

Last year the UK cybersecurity sector generated circa £13.2b an increase of 12% on the prior year, whilst it is increasingly becoming a hot spot for employment.

Importantly, the longer-term structural drivers remain strong in the UK alongside the Global markets with the Managed Services space being cited as being a real growth vector.

At the current time, Sys shares are unloved sitting at a 52-week low of 14.5p with a market cap of just £12m, which sees my sitting under water on my investment.

That said, I view this as one that is demonstrating the transition is working and that significant opportunities for growth, cash generation and profits lie ahead.

Heejae would appear to have plenty of conviction himself with significant skin in the game, having added to his first major share purchases earlier this year with buys of £800k shares in January at 17.45p followed by a further 250k shares at 15.5p in September.

A number of well-known Institutions also hold the stock including Gresham, Canaccord, Herald and NR Holdings.