SYS SEES AI BOOSTING THE NUMBERS - 15/07/26

SysGroup (SYS) delivered its full year 2026 results last week, demonstrating significant progress and, importantly, signs that momentum is now building.

Following my previous piece in April, written after catching up with Executive Chairman Heejae Chae, I am revisiting the business having once again spoken with him.

As far as the results went, they had largely been signposted in April’s trading update, but with more detail on offer they reinforced the view that SYS is becoming an altogether different proposition to the business of three or four years ago.

Revenue increased to £22.1m from £20.5m, while adjusted EBITDA rose 26% year on year to £1.2m, accompanied by a strong and welcome improvement in cash generation.

Although still a small player in a crowded but extensive market, SYS is arguably ahead of the curve in moving away from the traditional MSP model, with its early adoption of AI now beginning to deliver tangible benefits.

Heejae, who following the results has purchased a further 416,000 shares and increased his holding to more than 13%, was understandably upbeat on the outcome. However, he points to the progress so far as merely the start.

Importantly, the business has been completely overhauled, discarding much of the old and traditional MSP model and placing AI at the core of its operations.

Where the traditional model largely relied on adding more staff and layers of infrastructure as a business grew, SYS is fast becoming what it describes as an MSP 3.0 provider.

This sees the business combining cybersecurity, cloud and infrastructure, customer data and AI driven automation into one complete operating model.

In simple terms, and to use a car analogy, the traditional MSP acts rather like the AA, called when something goes wrong.

MSP 3.0 is more akin to the car’s onboard computer, constantly monitoring the entire system, identifying warning signs and increasingly addressing issues before a costly breakdown occurs.

Crucially, that potentially allows SYS to service and grow its customer base without a corresponding increase in headcount, which is where the operational and margin opportunity becomes particularly attractive.

Speaking with Heejae, he was happy to expand on this key aspect of the strategy to drive growth, improve margins and, importantly, ongoing cash generation.

“For me, the really exciting thing is that we are trying to be a different category of MSP.”

At the core of this, is the AI adoption and expansion where Heejae added, “over the next six months we want to be able to show that not only can AI achieve efficiency and productivity but it can also drive growth.”

At the forefront, he explained, is a very proactive proposition to customers, where SYS is aiming to anticipate challenges that may emerge, being ready to provide critical advice and the upgrades and actions that may be required.

The early evidence suggests the approach is beginning to work and, in an increasingly complex and ever dangerous commercial world exposed to ongoing cyber-attacks, the company appears increasingly well placed.

SYS operates in a £10bn UK market and Heejae believes that it will be well ahead in the competitive landscape, given its early adoption and expansion of AI.

“We aren’t aiming for global domination here, but the scope is real and we can gain traction as the organic growth is there and margins are improving.”

The aim, Heejae said, is to now maintain and build on the recent momentum and push margins towards the double-digit range, which could justify a materially higher rating for the company.

Having concluded full year 2026 with a strong performance, investors appear to be warming to the new numbers in the market from the broker, as the shares have broken out of a flat lined range.

The forecast sees a 2027 forecast upgrade installed, pointing to adjusted EBITDA of £2.1m from the previous £1.9m, with adjusted PBT being raised from £1m to £1.5m, giving EPS of 1.8p.

Those numbers are particularly notable, given that the revenue expectation has increased by just £200,000 to £24.5m.

The implication from that appears clear, in that the earnings upgrade is being driven primarily by improved efficiency and margin expansion rather than higher revenue assumptions.

Clearly, improved incremental efficiency is now dropping through the P&L, while the margin improvement and increasing quality of the business are also playing an integral part.

Importantly, the emerging model and strategy lend themselves well to operational gearing, which could see an acceleration in the positive numbers over the next few years.

The significance for investors is that SYS may no longer need substantial revenue growth to deliver meaningful earnings progression, although such an increase coming through should deliver tangible and positive results.

Indeed, if organic revenue growth now begins to build on top of the improved cost base and expanding margins, the impact on profitability could become increasingly significant.

Touching on the new numbers in the market, Heejae expressed confidence in striving to deliver on those, while also being mindful of a desire for further upgrades.

To further support and provide for growth opportunities, SYS is experiencing positive traction from its association with US based Rubrik, where SYS is one of only three UK MSP’s.

Heejae sees this as an integral part of their operations and said that a significant proportion of its pipeline has been boosted by the relationship.

One avenue which management had previously cited, that being the pursuit of becoming an AWS advanced tier partner, is no longer part of the business plan.

Heejae said that the expense, which would become ongoing, didn’t justify the means, particularly as it also didn’t really align to the MSP 3.0 strategy.  

That really plays to the Microsoft Azure ecosystem, as opposed to the hyper-scale infrastructure heavy nature of AWS.

With what is a clear and identifiable strategy in place, SYS is already demonstrating that modern IT delivery can benefit most from scalability and automated efficiency rather than the labour heavy administration model.

Importantly, this can accelerate on the margin expansion and in turn drive the desired positive cash generation.

Although organic growth is now very much a key aspect within the strategy, acquisitions do remain firmly on the agenda and Heejae maintains his view that the fragmented space is ripe for further bolt-on-buys.

To date, the acquisitions made under his tenure have been brought in at excellent multiples and have already provided clear benefits to the group.

Speaking of the most recent of those, Saxis, Heejae commented, “that was a great acquisition, a small business with a £2m turnover and we paid less than 2x EBITDA.”

And that would appear to be indicative of what investors will see again in due course, as management sees strategic opportunities arising from such purchases.

 “When we buy a company” said Heejae, “we acquire customers and that is essentially the main priority.”

Once acquired, the strategy is to sell other products within the portfolio to those customers, expanding the footprint and driving growth.

To date, that process has been delivered with Saxis, and Heejae added that the next stage of the process is to prove that this is repeatable, which he said is now a systematic process that can now be replicated.

In terms of funding further acquisitions, the balance sheet does appear capable of supporting further activity.

With £7.7m of gross cash at year end and additional headroom available through its banking facilities, SYS looks to have meaningful flexibility to pursue another bolt-on-buy without requiring shareholders to fund the deal through fresh equity.

Given the multiples paid for acquisitions to date, another Saxis style transaction could prove materially accretive, particularly if management can repeat the successful cross-selling process across an enlarged customer base.

Having been invested here for over six years, the business looks to me to be in the best shape that it has during that time and the model now lends itself to deliver growth in a UK MSP market that is forecast to see a CAGR of 10%-14% over the next ten years.

Having outlined his vision some years ago, Heejae, who has ample skin in the game has pivoted the business into what is now an agile AI native MSP 3.0 player that is backed by elite Microsoft and Rubrik alliances which break the old link between revenue growth and increased headcount.

The next year should now prove interesting for investors, as the opportunity to capture high margin UK mid market growth driven by AI automation looks both real and exciting.