Concurrent Technologies released what were positive Interim Results this morning, with further confirmation of what is beginning to look like an exciting turnaround / growth story.
Over the last year I have caught up with management on a few occasions as momentum began to build, so today provided for a further opportunity to hear more on how things are developing.
Firstly, before a quick look at the numbers from today, a brief resume on what the business is about, although I'll add that there is other comment already here on the blog for further interest.
The Essex based business designs Plug In Cards (PICS) which are of extremely high value and in many cases used specifically in rugged applications. The company also provides enabling software supporting security, porting services and faster boot times.
Defence makes up the largest contribution to revenue, although Industrial and Scientific also feature along with Medical where it has a global presence across the areas it serves.
The US is a major and significant market for the company followed by Europe and Israel along with others and the company is extending its footprint.
In terms of the numbers issued today, revenue for the period came in at a record half year with the £12.1m achieved, marking a significant 63.6% increase against the prior period, which in turn saw a pre-tax profit of £1m being delivered.
Product demand increased, resulting in a rising order intake across the first half, whilst the contracted order backlog was up to £29m providing for very good visibility.
Importantly, the business appears to be performing well with increasing opportunities where CEO Miles Adcock and CFO Kim Garrod hold a firm confidence in meeting the previously upgraded full year 2023 expectations.
Speaking with both earlier today, I was firstly keen to hear more on the much talked about component supply issues which, having been extremely problematic, have been easing.
In relation to this key aspect the company received some 2k microchips in June of this year, which was clearly pivotal in the progression of the business moving forward and Adcock was happy to expand.
“During the course of 2022 in particular” he said, “we had a number of components that were tough to get, with two particular parts proving very difficult.”
These, it transpires, come from a company called Microchip, which is a billion-dollar US company and it was the issues around the supply that caused CNC to downgrade last September.
Since then, things have greatly improved and Adcock adds, “the fact that they’ve been able to get back to delivering at volume was a landmark and a step up, both in terms of volume and their delivering within the timeframe that they said they would.
Of course, that is not the only delivery we will receive during the course of this year and we are now much more confident.” Expanding further, he added “at the peak of the component challenge we were tracking something like 5k components that we considered we were short, whilst at the moment we are tracking 24, which gives an overview of the improvement.”
Clearly the Microchip components were most critical to CNC and Adcock reaffirms that the situation has now improved markedly where he is confident on the next order delivery completing as expected.
With the business now looking poised for the previously highlighted accelerated growth, I was also keen to hear something on a more recently announced appointment to the team.
This concerns the hugely experienced Richmond Davies who came on board as Commercial Director back in March of this year.
Adcock tells me that it was quite a coup to secure Davies services where he had held senior positions at Airbus, HK Telecoms and at Capita’s defence arm. He added that since his arrival Davies has brought confidence and experience to the business in areas that CNC had not undertaken before.
The new man also, it appears, proved a pivotal player in the recently announced acquisition where Adcock says that he oversaw a lot of the legal side relating to that, which entailed an immense amount of work.
The appointment certainly appears to be a strong and advantageous one for the company as it looks to extend its reach and maximise on increasing opportunities.
In relation to the overall business and previously recently announced partnerships the CEO was also happy to expand on areas such as the alignment with Alpha Data.
“Alpha is a UK based/US company similar in size to Concurrent, but whereas we make single board computers, they make boards that often sit next to ours called FPGAs.”
The partnership I am told, now enables CNC to provide systems that include differing types in any combination for operational capabilities, which is an extension on what it has historically delivered.
Aside from the previously announced Alpha Data, there had also been news of another tie up with Relyum relating to a distributor agreement.
Adcock says that Relyum provides a very new, but increasingly important technology called time sensitive networking which serves complex systems, particularly across areas of the military where total accuracy and functional reliability are key. As a result of that deal, it brings something totally new and advantageous to CNC and a further expansion of offerings and capability.
In terms of the growth runway for the company, the relatively new systems business will, in the coming years, play an increasing role as previously pointed out to me by the CEO.
As for now, he expands and comments on timing for this area of the business. “In the world of systems, lead times are relatively long, so in six months you can look forward to us giving indicative messaging around business development and integrating defence business into what we do.
The company, as per my previous coverage on this blog, is already involved in a bidding process for system wins in what are weighty programmes that would make a marked impact for CNC should they prove successful.
Indeed, contracts for multi-year manufacturing systems could be anywhere between $2m-$10m per annum over a five-seven year period, so clearly there is all to play for on that front for the company.
The CEO, cautious but confident said, “let’s see how many we win and also how many we chose to win, as we don’t want to bite off more than we can swallow.”
Looking beyond the next six months of the full financial year, Adcock points to the subsequent twenty-four as where you might hope to see them landing a handful of those system wins and which he says, would be worth tens of million dollars each and that is what they are targeting through the recently announced US acquisition of Philips.
Having recently raised new money to support that purchase and with inventory unwinding, the year end net cash position is forecast by broker Cavendish to stand at £14m and that is a figure CFO Garrod is comfortable with.
As such, it begs the question as to whether there may be another small additional acquisition in offing, given the forecast firepower for the company.
Commenting on the latter, Adcock said, “we are acquisitive in nature, but what we have said is we will take the time absolutely to embed Philps Aerospace into this business, that has to be successful. So, the reason we raised more cash than you think we might need, isn’t about us going out of the traps and doing another acquisition, it’s because the Philips business that has run at $1m-$2m sometimes has been a classic owner managed operation.”
To this end. Adcock sees it as being underinvested and he believes that if they intelligently invest the right capital and capability in that business, it will really accelerate quite quickly.
Aside from the operations, there was also a mention of potentially reinstating a dividend at the full year end as CFO Garrod explains.
“We have said all the way through that we would want to pay a dividend, but we can only ever pay those when we have the right performance.”
With what she describes as the bottom line now coming and a much stronger second half expected, resulting in confidence in the broker forecasts then a delivered performance will clearly result in their looking closely at commencing payments once again.
Adcock also reiterates that confidence in the broker forecasts adding that “on almost any metric we prefer to take a very conservative stance and do as least as good as that, as we never want to set expectations that we struggle to deliver against."
CNC’s shares are off a couple of pence today, which is often the case, no matter how positive the results and outlook.
That however, provides for an opportunity for others, either looking to add or make an initial purchase where given the outlook and underlying confidence the next couple of years could prove exciting.
Broker Cavendish is forecasting revenue next year of £30m with pre-tax profits of £4.1m giving EPS of 4.5p and net cash at £15.1m.
On that basis and with potential for a beat further down the line the shares remain attractive for me and I'll look to add further on any weakness.