Having recently covered Concurrent Technologies here once again, where it has seen a tremendous turnaround take place, I am now turning my attention to SysGroup.
Whilst there are no similarities in relation to the operations of these two companies, there is one clear aspect to note that I am hopeful will play out in a successful vein concerning the latter, just as has been witnessed at Concurrent.
In short, this comes down to the key element of Management, or rather, a particular Executive who can serve as a catalyst for change and ultimately delivery for shareholders.
In the case of SysGroup, which incidentally is an end-to-end IT solution provider including cybersecurity, cloud, and AI, I am hopeful of considerable share price appreciation over time from the current depressed level.
Sys, is a company that I am very familiar with, having held the shares for a good few years now and having spoken with the previous CEO on a few occasions, where I also previously covered it here on the blog.
To date, it has been a fairly volatile ride on the share price front and without much in the way of notable progress regarding shareholder returns along the way.
However, back in 2023 the highly regarded former Volex and Scapa CEO Heejae Chae took a considerable stake in the company, equating to around 9% at 28p.
Indeed, he continued to buy more, increasing his holding up to a considerable 14% of the business, which subsequently culminated in his taking on the mantle of Executive Chairman.
In the wake of that, the then CEO Adam Binks stepped down, as did other members of the board of Directors, as Heejae duly assembled his own team which is now packed with industry experience.
For those unfamiliar with Heejae, it is perhaps worth taking a look at just what he achieved at Scapa, where I held shares from his early arrival.
When he joined that company in 2009, it was a classic penny share stock that was not only on the ropes and losing money, it was also burdened with a significant pension deficit.
In subsequent years a complete and major transition took place under his guidance, ultimately delivering massive returns for shareholders that stayed the course, the company being acquired in 2021 for £2.10p per share.
Whilst Rome certainly wasn’t built in a day and past performance is no guarantee for a repetition of success, it is clearly apparent that Heejae is very much passionate and excited about the challenge and opportunities at Sys.
Pleasingly, I have been able to engage and speak directly with him very recently to learn more on the current picture and the plans for the business ahead, where he believes there exists a major opportunity for the company to become a significant player in its field.
As with many turn-around plays in the early days, things don’t automatically run as smoothly as either management or investors might wish for and Sys is no exception to the rule.
The company just last month delivered its interim results, which was accompanied by a warning on the full year numbers for 2025 and that not surprisingly sent the shares sharply southwards.
Heejae acknowledges that it was unwelcome and unwanted, but was happy to explain the background, reasons and the way forward.
He told me that as a buy-build operation the businesses previously acquired had largely been cobbled together, resulting in a poor level of communication and interaction, not merely internally, but in terms of customer engagement and after care too.
There are some extremely key aspects here aside from its offerings, particularly in the kind of market Sys operates, as if you don’t look after those customers and clients whom you are serving, no doubt somebody else will.
The result through the last year was that whilst new business was very much won, downsells were higher than had been envisaged or indeed expected and that was after winning the second largest contract in the company’s history.
That was not down to losing much on customer numbers though, more the result of an inability to offer specific technology solutions, which is an area that has subsequently been addressed.
Going further, he went on to tell me that Sys actually has some five hundred or more customers that are served as contracted managed, although in many instances, they only provide for one sliver of capabilities.
The Chairman here is a seasoned operator, is open and forthright and happy to engage and expand further.
The bottom line is that he believes that although the expectations for full year 2025 have been downgraded, a number of issues that played out have been addressed, which in turn should stem that recent trend on downsells.
More importantly however, is what has actually been implemented across the business, where over the last year with his feet firmly under the table, Sys is now on a solid footing on which to build and grow the business into a serious market player well beyond its current market size.
Providing background and insights, which importantly and increasingly incorporates the adoption and expansion of AI, Heejae was happy to expand for me across a number of areas, which provides for some welcome insight into the business and the prospects ahead.
He speaks of the path forwards at the company as not being dissimilar to the task he encountered at Scapa, in as much as bringing about a focus on simplifying the business, along with a firming up on what it is good at, including integration and importantly synergies.
In terms of his vision and drive for Sys, Heejae said that much has been and is being driven by his own personal experiences, particularly from a technology-based perspective as a user.
For a number of years he has looked at data generation, whether that is running the p systems or web traffic or other aspects, leading him to the conclusion that there must be other things that could be done to really extract value and run a business better.
He said that having scanned the landscape, he recognised that there are around thirty thousand MSP’s across the UK, which now sees him applying a similar playbook to Sys as that which occurred at Scapa.
This translates into a relocation of the strategy, capturing the customers and distilling down to where the value propositions are, which also incorporates looking at costs and other key aspects in the overall picture.
As an integral part of the process, Heejae has brought in some highly experienced people, including an entire team of AI designers which he believes will provide for maximising the potential for the company in the years ahead.
AI is clearly something that he sees as being pivotal for Sys on its growth journey and with it providing the ability to analyse large amounts of data in order to identify patterns and predict future threats, it seems clear that the adoption and utilisation of it is a logical move.
One key aspect of the AI element from an investment perspective to understand is that AI take up isn't one of attempting to, or persuading customers to adopt it, but rather incorporating into Sys's own operations and offering, which in turn also brings obvious benefits to the customer.
Importantly, in tandem with the AI approach, Heejae speaks of the HyperCloud, where he stressed that if any business really wants to migrate into the AI world it clearly needs to move at least in part to that.
This enables and supports hybrid cloud deployments where it can be configured as a managed private cloud or a hosted private cloud, which in turn, provides for a solid and effective private cloud infrastructure with advanced cloud security.
Talking further of what has happened and been achieved since his coming into the business he commented.
“Sys is a collection of six small MSE’s that were cobbled together and the reality was, that when I came in and lifted the bonnet it was just an absolute mess.”
He added that systems and offices weren’t talking and customer engagement was poor, so the last twelve months has really been about addressing those issues.
Defining what their offerings are has been a specific aspect of moving the business forwards he added, as historically, Sys’s business was really geared towards private hosting, under the SysCloud banner.
“They then bought a cybersecurity business in Trustream” he added, “which was a really good acquisition in cybersecurity and that has been an area of growth and which continues to be a growing segment.
But equally, at the same time, the bulk of the revenue of what I call the legacy SysGroup on SysCloud, is a declining business as most people are moving to the HyperCloud environment.”
The result has been a declining revenue stream given a limited or restrained offering from the company, which in turn has resulted in that increased downsell, as customers embraced others with an increased offering.
However, aside from already taking various and significant steps to mitigate the legacy aspect of the business on its migration and transition path, Sys is very much increasing on the partner process which as of the last six months has seen it become an Amazon Web Services (AWS) advanced tier partner.
This is the second highest partner status around, but importantly, the company is currently working towards becoming an AWS MSP (Managed Service Provider) which Heejae said they are hoping to achieve by the middle of the year.
That will be a hugely and strategically significant milestone in terms of validation and recognition as there are only nine other companies in the UK with such a recognition and affirmation.
Whilst the partner process increases its presence and footprint, so too will revenue be brought in, which Heejae describes as a circle loop that he said will provide for a significant competitive advantage.
With Trustream already acknowledged as being a great business and providing growth, it is now being supported by a recently made small acquisition and the first to be undertaken under Heejae’s tenure, in the form of the consulting arm of Crossword cybersecurity.
Strategically it looks a good fit and the Chairman speaks of it as being a great purchase achieved at a very good price, where it sits largely as an experienced consultative offering to businesses looking to adopt across the cybersecurity space.
This sees company’s going to Crossword in order to design and personalise a security solution, which will now open the door for the wider Sys services to complete the product and provide the maintenance of that.
Aside from the Crossword consulting acquisition and other internal structural changes along with the internal drive and adoption of AI, Sys has also now launched its own new system named SysVault.
This in short, now provides the company with the ability to serve at another level across data protection, where hacking of businesses and the inevitable ransomware are an ongoing and increasing threat.
This is an area Heejae told me, where Sys has actually lacked a full capability, thus limiting its appeal, so the addressing of that and other aspects of their cybersecurity offerings, puts it in an altogether better spot for both retaining and growing the business.
Offering a fully functioning and synergistic capability addressing the whole spectrum of customer needs and requirements is very much part of the driving force now as opposed to what appeared to be a more fragmented approach.
Returning to AI and its role, Heejae said that he is a huge convert to it and believes that in time it will displace some fifty per-cent of the workforce.
In relation to its business and those it provides for, he stresses that it is really all about maximising the potential and effectiveness that AI and related tools bring to the table.
This, as an example, sees AI providing an ability for the continued and round the clock management of data in a fast and efficient way delivering an end-to-end solution.
That, he sees as being the next chapter of Sys and a key driver moving forwards, but at the same time he added a comment on the order to get there.
“I’m old school, I believe in generating cash, profitability and I believe in profitable growth, so we are leveraging what we have got to the customers we have today.”
Going further, he stressed that Sys has significant opportunities now, adding, “I see that the opportunity to sell more to the existing customer is huge and we are driving that, but if you look at our business today, I can explain what has been happening.
There are two things, as we actually grew our business, but what was not anticipated was that our selldown was significantly higher than that.”
Key aspects of this was in part, down to legacy issues, but also very poor relationships with customers and the inability to provide for specific cloud expertise.
Heejae, using an analogy, also said that given customer timings of exiting contracts, meant that the train had effectively left without any means of stopping it.
What investors will want to hear though is the existing and forward prospects and how that will determine the numbers and expectations ahead.
Continuing, Heejae said, “revenue loss as a result of that was bigger than we would have imagined, but I think a lot of that has already gone through and we are spending time re-engaging with the customers and showing them a much bigger proposition.
A lot of the problem was down to poor customer service and an inability to follow on the technology train.”
So, with key negatives addressed and a much improved and larger offering, the company should be in a position to now push on in what is a significant growth market.
“From our perspective today, I think we are in a so much better place than we were, the foundation is set and a lot of the tools are in place.”
Regarding the numbers forecast for the current financial year 2025, I was keen to gauge the level of confidence in delivery, as nobody here wants to endure another revenue and profit miss.
“The key for us is to stem the downsells and we need to manage that, but we have good visibility on this now and we also have the growth that is there”.
Heejae also believes that in time, AI will drive thirty-forty per-cent profitability gain, which given the firm focus, investment and work already done in that aspect, sees it well placed to deliver notable returns ahead.
Aside from off the shelf tools in this area that have been adopted, they have also developed their own internal system named Genesys in order to accelerate on that journey and importantly provide for a competitive advantage.
Another key aspect on the growth journey is also a much-improved balance sheet with debt wiped out following a significant oversubscribed raise last summer which resulted in a gross £11m figure being secured.
This saw existing Institutional investors such as Gresham and Herald standing their corners along with new investors coming on board such as Nat Rothschild and Octopus, which are positive endorsements.
Canaccord didn’t take part and has been selling down to a degree, but that is in keeping with other stocks it holds due to meeting redemption requirements.
The raise sees the company in a sound place to execute on its journey which Heejae said is recognised by a lot of its investors as a three-to-five-year project in terms of a real and significant transition from where it currently sits.
As what was set up as a buy-build-operation, investors or watchers will no doubt also be keen to hear more on that in relation to the runway for the business and a continuation on that path.
Heejae confirms it very much remains part of the strategy as he commented on this aspect. “I believe there is a tremendous opportunity to buy and build and I believe it is a buyer’s market out there. You can pick up some amazing assets like Crossword consulting and we did and I have already been inundated with proposals to buy and we have the cash.”
He goes on to add that he has the experience of making acquisitions, so it is really a case of when, not if, where at Scapa, both small and larger purchases were shrewdly executed along the way.
That suggests a similar path will be trodden, but importantly, will see carefully selected strategic additions made and at what will be decent multiples in terms of providing for profitable returns down the line.
CFO Owen Phillips is also sounding comfortable on prospects, highlighting the positive chunk of cash in the bank along with a supportive revolving credit facility.
“We are set up” he said, “and we are cash generative as a core business and so really it is about holding on to business and growing that and reinvesting and building out various capabilities, which we are doing.
We have got resources in India and a team down in Newport building on this, so there is some capital spend, but it is all part of the plan that is going to make us more efficient and push us forward.
So, I feel really good about the cash position and it is really nice to have that chunk of money in the bank, as when I joined, we had working capital, but net debt.”
Speaking on the acquisition trail he added that he really believes cash should be put to work on that front, but that he absolutely believes that it should be spent on something brilliant when the right one comes up.
They are, he added, continually assessing opportunities and there is a lot of great stuff currently out there.
That suggests to me that it shouldn’t be too long before investors witness another addition, which will hopefully be accompanied by a reaffirming of the more positive forward picture.
Heejae reiterated to me that Sys is actually a very cash generative business, so the potential is very much there for a demonstration of number delivery ahead.
The outlook across the UK for MSP’s in the cybersecurity space is one of extreme positivity in terms of growth, which given the fragmented nature should provide for opportunities for companies such as Sys.
Looking at the numbers in the market from broker Zeus, full year 2025 revenue is now expected to come in at £20.5m with a negligible adj PBT of £0.1m.
Next year however, a significant turnaround has been pencilled in, with revenue of £25m and an adj PBT of £1.3m, which would provide evidence that the plans put in place will be delivering.
Since speaking with Heejae, he has bought a further 800k shares at 17.45p, which follows on from his picking up 150k last month at 23p.
I am hoping to speak again with Heejae in due course as the story builds and remain hopeful that the shares will move northwards from the current 17p throughout the year.
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