It has been some time since I last took a look at Colchester based Concurrent Technologies, and even longer since I last held the shares.
Back then I bought in at the 30p level and eventually sold out a few years back at north of 70p for a very good return in order to deploy the funds elsewhere.
This week however, I have decided to return to this developer and manufacturer of high performance and embedded processor products and systems that are used in critical end applications.
Its main markets include defence, scientific, transportation and communications that sees it active across the globe and where it serves numerous and often quality customers.
Defence makes up a sizeable proportion of the total revenue, which may now see the company extremely well placed given that the UK Government announced a massive spending boost for the sector at the back end of last year.
A major area highlighted by the PM was across artificial intelligence and sensor connected hardware which is likely to form a key aspect of the $21.8bn over the four year period. This could prove beneficial for CNC which boasts a very good track record of bringing new systems to market and last year launched a new high performance artificial intelligence accelerator board.
This is focused in and around the area of recognition and behaviour monitoring and enables the user to both receive and process real-time active intelligence from vision.
At the time of launching this product, the company commented that AI technology had matured and that the interest was now being picked up on by both the defence and energy exploration markets. At the current price of 94p CNC has a market cap of £69m and currently stands on a PER of 15, if we work on the expected adjusted pre-tax profits and EPS figures.
Whilst that is significantly cheaper than the rating attributed to peers, the discount is arguably down to CNC being more of a steady performer, rather than enjoying strong growth numbers as achieved by others.
However, I believe it is worth my taking another much closer look and potential interest here, as there are a number of factors that suggest that the shares could now go on to head northwards. Aside the aforementioned (defence) opportunity, the first and most obvious attraction at CNC is a wonderful balance sheet, which was a big plus in my last investment here.
Indeed, that positive has been strengthened over the years and the company has no debt, just cash, and a full year 2020 end expectation of an £11m figure.
Alongside that robust situation, the company has been and remains very conservative and extremely well run, which has rewarded longer term shareholders over recent years and provides a high level of comfort in difficult times.
It also pays a dividend with a progressive policy in place which should, once the full year payment is announced result in a total figure for the year ended of 2.5p.
The cover is in the right place too, with an average level of 1.7x but which is expected to increase to 2.5x for the year to be reported.
Of course, investors focused on the technology space really look for growth potential and although pre-tax profits have been solid here, they haven’t exactly set the world alight.
Despite that, the fast pace of change in the digital world we live in and which has been accelerated as a result of Covid, puts CNC in a strong position for its products and systems with potential for increased growth across a number of areas.
Although in keeping with many companies, CNC succumbed to a level of uncertainty at the onset of Covid, it was quickly designated as an essential defence supplier, which resulted in continuity throughout lockdown and a solid performance through and beyond the first half of the year.
As a result of that, in December of last year the company delivered a Trading Update to the market which was certainly positive, citing pre-tax profits for the full year 2020 as being ahead of expectations.
This led broker Cenkos to upgrade its forecast numbers with revenue moving to £20.2m from the previous £18.7m with adjusted pre-tax profits of £4.7m from £4.3m. Adjusted EPS have been pencilled in at 6.1p, which is an improvement from the 5.7p that had been cited.
The company delivers its full year results next month and there should be some clear indication on the year ahead, which could,
on the back of a number of new products and both defence and 5G momentum provide for a positive picture.
I am hoping to speak with the company on the day and will, if coming to fruition provide a more in-depth write up then.
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