COULD PENNANT BE POISED FOR A LIFT OFF - 16/05/2026

Despite wider economic gloom and domestic uncertainty, several AIM stocks I have covered here have performed extremely strongly of late, including Filtronic, EnSilica and Calnex.

Anyone interested in taking a look back at my reasoning on the investment case for these businesses can find previous articles elsewhere on this blog.

A few stocks which I have covered, and in which I have an interest, do remain underwater, although two of those now look ripe for a turnaround.

These are SysGroup, which I covered here just last month, and Pennant International.

After years of disappointment, I believe that Pennant in particular (PEN) is fast approaching an inflection point that could finally trigger a meaningful re-rating.

Regular visitors will no doubt be aware that I have covered this company on a number of occasions now, although frustratingly the shares have, to date, disappointed.

Indeed, I first penned a piece on the company for my Cambridge News column as far back as 2015, speaking for the first time then with CEO Phil Walker, who at the time was CFO.

During that period, and to my knowledge, PEN has at no time issued the kind of ahead-of-market update that investors enjoy, nor received an upgrade to market guidance.

I believe that is now set to change, with the company at what I see as a key stage that could, at long last, deliver an upgrade to the market and provide the catalyst for a turnaround in the share price.

To recap, Pennant International is, despite its relatively micro-cap size, a global technology and engineering company that provides specialised software, technical services and immersive training solutions.

It primarily serves the defence, aerospace and rail sectors by helping organisations manage extremely complex equipment data and effectively train operational personnel.

Over the last five years or so, the company has been on a journey to transition from a largely hardware-focused operation with lumpy revenues and often poor margins.

Additionally, the balance sheet has been weak and the business has been heavily exposed to long procurement cycles.

To compound the frustration, PEN has missed out on the notable share price appreciation enjoyed by many others serving the defence sector.

Back in January, I caught up again with Phil Walker to hear more on the prospects ahead, although I have held back on penning something until now.

Today, PEN is looking much more like an asset-light, high-margin software and IP-focused business that is now witnessing a significant uptick in annual recurring revenue (ARR).

For me, that is a key differentiator, and one that, to date, appears to be largely overlooked or ignored by a market that still seems to value the business as though it remains primarily an engineering hardware operation.

The current market capitalisation,at around 20pper share, is less than £10 million and would appear to disregard the fact that businesses with increasing ARR momentum typically command superior valuations.

Additionally, at long last, there are clear signs that PEN is now on a genuine growth path, with a £23.3 million three-year contracted order book that has seen £11 million of new orders since September 2025.

Importantly, at least 80 per cent of the 2026 revenue forecast is already in the bag, so with around seven months remaining and a positive backdrop across its markets, PEN looks well placed to deliver.

Central to its transition and drive for growth and improved profitability is the company’s Auxillium suite, which has taken close to three years of heavy investment and R&D to develop.

Auxillium functions as a single connected ecosystem that links highly complex engineering, data and maintenance records across an enterprise.

Of particular note within the Auxillium offering is that last year Siemens, via its Digital Industries Software arm, joined PEN’s global reseller network as an Original Equipment Manufacturer.

This has seen Siemens embedding and opening up distribution for PEN’s GenS technology, the cornerstone software application within Auxillium, into its own Teamcenter product.

The latter is a unified digital platform that connects people and processes across a product’s entire lifespan, from initial design concepts to final manufacturing, servicing and eventual disposal.

Although Siemens does not disclose a breakdown of revenue generated from Teamcenter, it is believed to deliver annual revenues of around $1 billion.

To better understand what Auxillium brings to the table, I asked Phil to explain when we caught up.

“Within Teamcenter, they have had a gap in their capability, which is around the logistical support analysis record.”

As a result of that, close to two years ago Siemens embarked on a process to assess what tools were available in the market, which resulted in PEN being placed into a technical path programme alongside a number of competitors.

The result was that PEN emerged as the winner of that process in July last year, thus securing a global partnership for Siemens to resell the product.

While that was clearly excellent news, there then followed a lengthy onboarding process, as Phil explained.

“After signing the contract, that can actually be up to twelve months long to complete the process and be fully on board, which was perhaps longer than we appreciated.”

The result, Phil added, was that the team at PEN had been working very hard to complete the process, as until it was actually concluded, they could neither appear on Siemens’ price list nor be sold through its channels.

Thankfully, the onboarding was fully completed in January of this year, and PEN is now an integral part of the Teamcenter capability.

The beauty of the arrangement is that PEN now has access to key markets and major customers that it simply could not have reached alone, whilst also now having the kind of marketing force it could only previously have dreamed of.

Importantly, Phil said that Siemens personnel will be trained to undertake all product demonstrations and should, in theory, become one of PEN’s most important sellers globally.

“Siemens is a great name and we see this as a major validation, but nothing would matter more than our making a public statement around the first transaction.”

Phil added that they were hoping to conclude that in the first half of the year and would be very keen to announce that to the market when able.

Although for now it appears to remain something of a waiting game on that front, it has nevertheless been interesting—and seemingly significant—to see PEN recently referenced on a Siemens blog.

This appeared earlier this month and, with Siemens being the undisputed leader in Product Lifecycle Management (PLM), such an endorsement appears to be a genuine positive.

What a dedicated feature article on Siemens’ corporate blog suggests is that the company is now actively marketing GenS as a core component of its ecosystem, providing reassurance that this is not merely an ignored “paper partnership.”

Moreover, with the US Air Force standardised on Siemens Teamcenter as its enterprise-wide PLM platform, and PEN’s technology now natively embedded in the very software it uses, the potential growth opportunity appears highly significant.

Of course, right now and understandably so, investors will now want to see proof of the pudding and confirmation that the prospects can translate into tangible numbers.

To that end, Phil was happy to expand on PEN’s markets.

“Currently, it is the defence market for us and it is where we are strong now. But in the last period we had a space agency, robotics and a shipping business all acquire different aspects of our tool set.

We have always felt that our tool set could play into highly regulated markets, but we haven’t been targeting that as actually for us the low hanging fruit is the cross-sell products into existing customers.”

Expanding further on defence, Phil pointed to the global uncertainty backdrop and increasing spend, along with operational readiness and support systems being an integral part.

“Although budgets are going up, you have to get more for your money and we play directly into that, so defence is very much the focus for us.

So, at the moment it’s not only defence, but also Western and Eastern Europe, which is a big market. We thought it would be North America, but it has been Europe, with Estonia, Lithuania and Poland.”

He added that sales had also been made in Finland and the Netherlands, where given the prevailing climate that trend looks destined to continue.

“These countries, including Germany, have all woken up to the fact that their systems and processes aren’t adequate for their current needs.”

A really important aspect of business that has been won, and which is coming down the line, is that it is and will increasingly be very sticky.

Although the period from the first conversation to a trial and adoption can be protracted, Phil pointed out that once implemented, the nature of what they are providing will run for many years.

As many investors will no doubt ask, is AI a feature, or could it prove problematic in any way for Auxillium?

“It was built very much with AI in mind,” Phil said, “but the AI functionality hasn’t been turned on as yet, as we have been concentrated on getting it fully implemented.

There is an AI capability within the product and we will start turning that on later in the year.”

Importantly, PEN operates in an extremely highly regulated environment with a high barrier to entry, which mitigates the level of competition.

Phil pointed out that the company has three specific applications and that nobody else has the ability to bring all three together in the way they have achieved.

Looking at where the business is right now, PEN announced just last week another contract, this being a new £1m order for a virtual training simulator from a UK air defence manufacturer.

The initial order is to be completed in 2H 2026, with additional production orders and revenue opportunities expected going into FY27 as the training device is rolled out across the customer’s end user base across countries.

That contract supports the current broker forecast of revenue at £13m for the current full year with adjusted EBITDA of £1.6m, which moves to £14.5m and £2.1m next year.

Given the past, PEN now has to deliver on what are clearly real opportunities, and further contract wins supporting the recent momentum will clearly drive that.

Certainly, a re-rating would be both welcome and overdue, and if delivered, would see the business in a wholly better place than where it has resided for some years.

Although the contracts are what Phil describes as cash positive, working capital does remain tight across the business, although he points to that being improved on 2025.

If PEN can continue on its more recent positive pathway, accelerate that, and beat existing expectations, then it could find itself in an altogether different place and once more appear on a wider investor radar.