CONCURRENT TECHNOLOGIES CONTINUES ON THE GROWTH PATH - 16/04/25

Concurrent Technologies (CNC) , the Colchester based company focused on designing and manufacturing high-end embedded computer products and systems, released its full year 2024 results earlier this week.

CNC is a very familiar subject here and following on from previous discussions with management, I was once again fortunate to catch up with CEO Miles Adcock, CFO Kim Garrod and other members of the team.

Suffice to say, following previous upgrades to the market, CNC delivered excellent numbers for the year in question, resulting in revenue jumping by 27% to £40.3m whilst pre-tax profit surged 40% to £5.2m, which in turn, saw a 23% increase in net cash that stands at £13.7m.

The company’s ongoing positive performance and building momentum had resulted in an extremely impressive share price run, where the 52 week range of 87p-£1.97p, currently sees the stock sitting at £1.59p.

With a heavy focus and exposure to defence, it is not surprising that CNC has attracted attention, particularly given the industry backdrop and positive growth potential alongside the company’s offerings being at the high end and which is likely to see continued demand.

Of course, recent actions and noises around tariffs in the US, has somewhat muddied the waters across most areas of business and in keeping with the wider market, CNC’s shares haven’t been immune to the fall out, thus retracing from the previous highs.

With tariffs in mind, I thought it worth my opening on this issue with management for some further clarity and insights, as this is no doubt of increased interest to those holding or watching the shares.

From an investment and operational perspective tariffs are a potential near term headwind, which broker Cavendish understandably flagged up in its new note on the back of the results.

Speaking with Adcock on this matter he was happy to expand and quickly pointed out that there is quite a lot involved in a space that has changed and may well do so again.  

He explained that if the 10% tariff were to persist, then purchase orders already accepted which they are obliged to honour, would then see CNC having to pay the tariff and that would result in what he described as being a manageable profit hit.

However, despite understandable concerns the situation has caused, there has been a key development within the picture which will no doubt resonate with investors providing for some reassurance.

This relates to everything that CNC ships to the US being classified under what Adcock said is the import code 8471.

That sees 20 product categories recently published by the White House being exempt from tariffs, which, in what the CEO said remains a fluid situation, sees him hopeful that their exports to the US will now be excluded from any reciprocal tariffs.  

More will no doubt become apparent in due course, but for now, it appears to be a positive development for CNC and the space in which it operates.

In relation to design wins that are secured via the US based business, once these are designed in, Adcock stressed that they can then expect annualised purchase orders, which they quote as and when requested. The result of this is that they are not committed to a fixed upfront price for the full product lifetime.  

Commenting further on the systems  arm, he reiterated as in our previous conversations that the acquisition had been bought more as a start up and a catalyst for bigger things.

Thus far things appear to be going well, and I was told that expert people had been taken on along with the appointment of a contract manager and although it was loss making last year as anticipated, it is now well placed to develop and expand.

Adcock added that it has commenced the year with a $5m backlog, plus it is winning business that is expected to be executed this year, which should result in a really strong performance.

He also stressed that they are taking an extremely conservative view at present, prior to its achieving proof of delivery.  

Importantly, despite tariff issues, the US remains committed to continued defence spending, so it would appear that in the medium to longer term, the recent tone on this issue and any potential disruption should dissipate or be resolved, if not sooner.  

Although the US remains its largest territory, CNC is now well spread geographically, with just over half of the total revenue generated from other regions, where Europe accounts for a significant £11.8m.    

As revealed in the results summary, the company has just presided over what was record order intake during 2024 and within that, secured its largest-ever single purchase order for $6m.

Looking ahead in the next few years the pipeline remains robust and Adcock and his team anticipate a significant revenue and profit increase from 2026, driven by the full impact of major design wins and the increased capacity across their operations.

Looking away from the US, chief revenue officer Brent Salgat said that the company had strengthened its presence across Europe and elsewhere with major sales partners now in place for increased distribution and channels across the markets.  

He also pointed out that CNC had hosted a distribution event at its Colchester HQ last summer which had proven to be a significant success, bringing various parties together under one roof.

Feedback post the event had been positive and resulted in what he described as positive momentum on the back of that.

Europe, he added, looks strong and with 87% of CNC’s revenue tied to the defence market segment he pointed out that the company is in a strong position across that region going forwards.

The UK, which historically was under served, has also seen increased investment across the CNC business with a much-improved sales presence and importantly, improved direct relationships with the likes of the MOD.

Salgat also added that the pipeline for the company within the UK market looks strong and there should be positive growth coming through on the back of that.

Since Adcock’s arrival at CNC and his building of what is a highly experienced team, progress has been tangible and importantly provided a visible pathway to longer term growth and increased profitability.

To date that growth has been organic, which should continue and be further driven by the evolution of the US based systems operation, but could in due course be supported by further acquisitions.

Despite the current economic turbulence, Adcock said that their stance hasn’t changed on this front and that the right strategic additions remain very much on the agenda for CNC.

R&D also remains a key feature and the CEO was keen to stress the importance and success in this aspect, where being early to market has been instrumental in the success of programme wins.

As a testament to that strategy, Intel showcased CNC’s latest products just last month on their booth at “Embedded World”.

That is the largest global trade fair and conference for the embedded systems community, which brought together over 1,100 exhibitors and saw CNC’s products demonstrated as the first to market incorporating Intel’s latest chipset.

With a clear strategy for growth in a market destined for increased spend, CNC will be moving to new facilities next year, which should provide for increased capacity.

The location is just seven miles away from the current HQ, so there shouldn’t be any logistical concerns, whilst the company will be utilising £5m from its cash reserves to fund the process which will include additional equipment and machinery.

Looking at broker Cavendish’s numbers, revenue for the year now in play is forecast to come out at £43m providing for an adj pre-tax profit of £6m and 6.6p EPS.

This moves to £49m of revenue next year, with PBT expected to increase to £7.7m with 7.7p EPS.

Whilst the forward PER of 20 may look up with events, investors are often inclined to pay more for tomorrow's growth, which given the defence market backdrop, could provide for further substantial opportunities for the company.

Additionally, a timely acquisition that could be funded fully or in part from existing cash resources would further boost earning potential with little or no dilution.