RC FORNAX, A NEWCOMER OF GROWTH INTEREST - 29/05/25

The Defence sector has understandably attracted plenty of investor interest over the last year or more, where from a personal level, Concurrent Technologies (CNC) has been a big winner for me.

More recently, my attention has turned to a market newcomer in the form of RC FORNAX(RCFX), which only came to the AIM in February of this year at 32p per share.

The company was founded by two former RAF veterans who collectively possess plenty of experience and know-how in the defence space, which sees them now looking to grow the business well beyond its current size.

As for its operations, RCFX specialises in various defence solutions where it provides both services and consultancy across many military platforms, including projects involving  drones, fighter jets, tanks and naval ships.

It is already working with major Tier 1 players in the space and has, in its short life, already demonstrated impressive growth and importantly, increasing profitability.

To hear more on the business, I recently caught up with CEO and Co-Founder Paul Reeves, who was happy to expand on the services the company offers and where it is heading in what is clearly a hot sector.

He was quick to explain that at the outset, both he and Daniel Clark (Co-Founder) wanted to build an engineering consultancy to specialise in high impact defence solutions.

Whilst the consultancy term and field embraces many aspects, the CEO added that they were really focused on how to convert traditionally labour-based engagements to outcome-based services, with the goal being that of providing greater value and efficiency.

With an abundance of industry knowledge and having engaged with Tier 1 players over the years, both Reeves and Clark saw a path to developing and growing the RCFX business on a number of fronts and through various avenues.

“We now support major Tier 1’s, identifying delivery gaps and defining packages of work across the full product life cycle and that sees us covering land, air and sea.”

This, I was told, can result in involvement around a next generation aircraft, armoured fighter vehicles, or ships and submarines.

“We integrate ourselves to work with the client and work with them to define what it is they want to deliver and the fixed outcome over a set period of time, before putting that into an incremental delivery model.”

This sees RCFX building and providing bespoke teams around the solution requirements which often calls for highly specialist and skilled personnel for delivery with specific expertise and knowledge.

The company is also very much involved in the generation of Statements of Work, which are the documents between a service provider and the client outlining the specific tasks, deliverables, and milestones required to complete a project.

RCFX enhances and augments customer capabilities while improving project efficiency, where the project is effectively captured and subsequently assists clients with both accountability and flexibility throughout the life cycle of a contract.

Given where RCFX sits, it would appear to be well placed to prosper and grow, in line with the increasing trend across the defence sector that includes outsourcing, an area which Reeves said is something companies are increasingly looking to adopt.

Expanding, Reeves added, “when you cut through all of the noise, you are going to get an engineering manager who is trying to deliver a project and develop something that is technically complex.

They don’t necessarily have all of the internal resources or specific skills for that, so they are going to need some help along the way.”

Traditionally, I was told, such players would have two routes to meet that challenge, one of which would be to hire people directly themselves through the likes of recruitment agencies.

This has its pitfalls, which includes time engagement and increased spend which Reeves said also sees the process often taking months to conclude.

The second route is that of direct outsourcing, but this also has its own drawbacks, such as providers not necessarily being able to deliver the right team at the required time.

Additionally, project changes that are often the norm across the industry can prove problematic in terms of communication and delivery.

Reeves said that their model solves the highlighted issues, as the problem solving effectively sits between the two aforementioned offerings.

“Where our model solves this, is the hybrid solution between the two, so we build our teams from what we call our associate community of specialised engineers and others.

We offer more to these people, and retain them too, and that is how we form a team and in doing so, we deliver work just like a consultancy, with a flexible method.”

This sees RCFX typically embedding one of their team leaders directly with the client which enables the updating of the statement of work as things may change. It also ensures a hands-on approach with that client which proves highly cost effective and increasingly efficient.

In short, I was told, it is all about doing the right things at the right time and with the right people in what is a critical and technically demanding space.

Experience and know-how are key to the company’s offering and delivery, therefore making it an attractive and viable option for its client base, which is why it has already proven successful in growing the business.  

But, despite looking well placed to execute on delivery, it is nevertheless a relative newcomer, in that it was only founded as recently as 2020, so I was keen to hear the level of stickiness and client retention going forwards, along with ongoing growth opportunities.

Reeves acknowledges the fledgling nature, as he commented, “we didn’t actually commence business until 2021 and in our first year we were very cautious and focused on the documenting process and ensuring that everything was in place to deliver.”

At the beginning, contracts taken were small, providing for proof of delivery, they then paved the way for larger and longer-term projects that run for a significant number of years.

As things stand, most of RCFX’s work comes from four of the top ten defence companies by value, which is proving sticky, as they now have growing accounts with every client, further suggesting an embedded nature.  

Having spoken with other quoted defence players such as the previously mentioned Concurrent Technologies, along with Pennant Intl, I am well aware of the length contracts can take to come to fruition.

As a result, I was eager to hear what the situation was like for RCFX and the CEO was happy to enlighten me, where he said that they are actually rapid in delivery, being able to assemble the right team and cover all the required method and clearance aspects in just a matter of weeks.

Of course, the clients it serves will have already gone through a process of tendering for defence business which he said could take anywhere between six months to as much as four years.

He accepts that the industry itself is a slow-moving beast, but things really need to change, particularly in the current climate where there is increased focus and concerns around defence and global security.

RCFX itself is certainly not in a slow gear mode though, as revenues have been increasing and it has recently opened a new office in Bristol.

Having originally commenced its business on a remote basis which saw a geographically diverse operation, things have subsequently moved on and accelerated.

A first office was opened and located in Manchester, followed by a second in Cranfield, Bedfordshire, which came into being in late 2022, with both now being joined by the new Bristol arm.

The latter appears to be a serious step forward being based close to the MOD HQ along with some of its own key clients who are also located nearby.

Reeves said that Bristol is a real HQ and is ideal for permanent staff where the headcount is increasing.

The latter commenced at eight, increased to a current seventeen and it is now expected to hit forty by the end of the year.

Regarding the financial performance, last year saw the company delivering revenues of £6.5m which in turn saw adjusted EBITDA of £1m and adjusted PBT of £0.8M.

For the current year (2025), broker, Cavendish, is forecasting a marked increase with revenue pencilled in at £11.5m with adjusted PBT earmarked at £1.4m, providing for EPS of3.2p.

In its recent Interim Results, the company registered six months revenue of £3.8m which was accompanied by a 17% jump in gross profit to £1.3m, however, it appears there is a fair bit to do in the second half to meet that £11.5m of revenue as cited by the broker.

On this aspect, Reeves firstly pointed out that the company finds it difficult to keep investors informed on specific contract announcements via an RNS, due to the terms and conditions in place with a client. “We have been trying to work on that with our clients, because obviously we want to shout about some of the things we are doing.

Clearly, I want to be sharing good news at every opportunity, so it is something we are working on.”

In terms of the first half performance Reeves said it was as expected with no surprises and he accepts that they do have a challenge in terms of delivering on the second half.

However, he also added that their offering has expanded, with strong and building relationships accompanied by a very strong pipeline, which he added is fantastic to see.

They are also submitting significant numbers of tenders for business and he describes with confidence that the future is looking good for the business.

Organic growth would appear to be the key moving forwards as M&A is not currently part of the plans, although the CEO wouldn’t rule it out further down the line. He said that they very much see partnerships as the way to go and that the company is well placed to execute, which also sees  International expansion also on the agenda.

Currently everything RCFX undertakes is UK based although clients are multinational, so by their nature there is already an element of International exposure, as well as generally increasing exposure.

The CEO also speaks in terms of a clear plan in place reaching out to five years and as part of the longer runway he talks of the company also eyeing opportunities away from the defence sector.

Aside from the aforementioned, RCFX is also pressing on with its own AI product titled Smartscope which will provide it with another arm to its offerings.

It is its first fully owned and developed IP and is being developed with the objective of streamlining Statement of work creation- mapping project schedules, unallocated tasks and resource needs into executable work packages.

Client testing of the Smartscope minimum viable product is expected in July 2025.

At a current 37p per share, RCFX has a market cap of £21m, where there is net cash on the balance sheet, forecast to be £3.2m at the year end.

The shares trade at a PE of 11 based on the Cavendish forecast, which if deliverable, would appear to be very good value, particularly given the market and opportunities.

Of course, if the numbers are missed, the short-term reaction would no doubt provide for an entry point at a lower level than at present.

Either way though, the business looks an interesting growth prospect, led by a CEO who comes across as both passionate and well versed throughout the industry.