PENNANT INTL DELIVERS TANGIBLE PROGRESS - 02/09/26

Pennant Intl (PEN) has delivered very positive Interim Results this week, which resulted in my catching up again with CEO Phil Walker, alongside CFO Darren Wiggins.

Despite the shares having pushed on a significant 40% since my last piece here in May, from 20p to a current 29p, momentum is clearly building and that could result in further upside.

As far as the numbers go, PEN delivered a 29% increase in revenue to £5.8m, which in turn saw adjusted EBITDA of £0.5m.

Although on the back of that, the company states that it is trading in line with the full year expectations, given the recent traction, it does appear that it wouldn’t take much in the final quarter to deliver a beat.

With in excess of 95% order coverage already in place and the stated goal of delivering in excess of £3m ARR already within touching distance, it may now be worth keeping a close eye out for further news flow.

PEN is now very much a defence aligned software business that is delivering improving margins and increasing ARR and the current market valuation continues to look attractive at the smaller micro cap end of the market.

Speaking with the two Execs, whilst there was clearly a degree of satisfaction on what has been achieved, both see the current period as more the beginning of a previously laid out three year plan.

Importantly, that plan did not include anything from the more recently cemented relationship with Siemens, which is already delivering tangible results.

Phil was understandably pleased with how that relationship is developing for PEN’s flagship Auxilium platform and the opportunities it may unlock.

“The organic growth is strong,” said Phil, “and if Siemens can start to develop in the way we hope, there should be some upside there.”

CFO Darren added, “the exciting bit is that entry into the US defence end market, as we just wouldn’t have been able to make a quick inroad to that without Siemens. It is hard to extrapolate from the early wins and there are more to come, but how to view it is that we have spent years on our direct channels, building up beachheads, but with Siemens we are now getting there much faster.”

Although clearly a small and to a degree a niche operator, PEN now has growing opportunities in an increasingly unstable world and Auxilium is a key aspect of that.

In providing a unified system support software suite that acts as a “single source of truth” for managing, modelling, and utilising complex asset data in high consequence industries like defence and aerospace, there are multiple opportunities for adoption.

The Siemens endorsement is acknowledged by Phil as being of significant importance and with Auxilium now embedded into the Siemens Teamcenter product, the US defence market is a real growth driver.

Whilst that market is clearly potentially highly rewarding, Phil pointed out that Siemens is actually keen to expand beyond the US and defence.

“They actually want to take this globally and to other sectors,” said Phil, “so our aim is to continue to prove its ability across the US market, then Europe and wider, along with other sectors further down the line.

For us now, it is really just about proving that it is the capability which our customers need.”

Whilst the figures just reported are both welcome and reassuring, investors taking a look from the sidelines will no doubt point to the current year numbers forecasts as being unexciting.

Although on the face of it that would be a fair comment, particularly given that the balance sheet could do with strengthening, it is worth delving deeper.

The real takeaway from the results isn’t simply that revenue is growing, but more how that revenue is now dropping to the bottom line.

The numbers actually bear testament that its software transition from a legacy hardware footprint to a high value ARR model is now bearing fruit.

Previous losses have been eradicated, with the delivery of an impressive adjusted EBITDA margin.

Furthermore, gross profit margins expanded to 54% and with that full year 95% order coverage already in the bag, the infrastructure is now built to support increased operational leverage.

If the Siemens channel begins to demonstrate scale across the US defence sector as management is hoping for, incremental revenues should drop straight to earnings with very little additional overhead.

On that basis, the real tangible benefits and more marked numbers performance should come through next year, accelerating into 2028 and beyond.

Defence clearly provides for a strong tailwind and given its position in the food chain, PEN is only now beginning to realise the benefits.

The announcement earlier in the year of a multiyear Auxilium services contract with the Canadian Department for National Defence with a potential value of around $35m serves to further shine a light on the opportunities that exist.

Away from the Auxilium contract wins, PEN has also been successful across its Training Systems segment, where a £3.6m contract award was announced with BAE Systems in Australia last year.

Last November also saw the GenFly award worth up to £5.75m over a three year period, which is focused on Generic flying control training rigs housed at RAF Cosford.

Additionally, there was also earlier this year the landing of a simulator related contract with a UK defence player, which was valued at £1m with potential for additions to follow.

PEN is also, Phil revealed, part of the BMFS Modernisation for Support programme, which is a comprehensive £466m UK MOD information technology and logistics initiative.

However, Phil was keen to stress that they actually see greater growth opportunities away from the UK.

“To be honest, the UK isn’t a really important market for us anymore, the US with Siemens, the APAC regions and now the European markets are much more important for us.”

That serves to illustrate the ambition of the management team and the desire to maximise the opportunities and growth potential.

For now, broker Cavendish is expecting full year 2026 revenue of £13m with adjusted EBITDA of £1.6m, moving to £14.5m revenue next year with EBITDA at £2.1m and an adjusted PBT of £0.6m.

And looking ahead, the balance sheet should also take on a considerably healthier picture by year end where the CFO pointed to HSBC as having been supportive on the working capital front through this year.

Some chunky milestones being hit on the three key training projects should also assist and provide for a degree of comfort in the coming months Darren explained.

This should see a reversal on the debt front reducing the 2026 year end number to around £0.5m.

The aim is to then see the move back into profit and organic growth strengthening the balance sheet and that is a plan which management believes is deliverable.

Nothing is of course certain and all businesses encounter hurdles, but with a strong tail wind and what appears to be an accelerating and increasing adoption of Auxilium backed by Siemens, the company is looking well placed to deliver.