Pennant International Group (LON:PEN) is the topic of conversation when we caught up with Nick Spoliar, Analyst at WH Ireland.
Q: Can you tell us about Pennant International’s strategy and how it has evolved?
A: The company’s strategy has been evolving to keep pace with the demand for higher value-added business streams. Pennant supplies software and integrated product support solutions to a wide range of clients, including OEMs and governments. Software licenses and related streams are increasingly key to the mix, while in general the products are also becoming more software-orientated. Related to these shifts, the company is focused on generating increasing levels of recurring revenues which are able to provide a robust revenue base.
Q: What can you tell us about the company’s financial performance?
A: Gross, EBITDA, and EBITA margins progressed strongly in the first half, an encouraging outcome. Net debt is less than half the levels of the prior period, and we continue to forecast net cash by the year end, bearing in mind the cash-generative qualities of the business as programmes unwind.
Q: How does the company’s order book look?
A: The company’s order book looks well-underpinned, with £15m-plus revenue cover for the current year (£15.5m FY23E forecast), based on H1 revenues plus the order book for the second half. The recent acquisition of the rail services business, Track Access Productions (TAP), lends further support / momentum.
Q: Can you tell us about the company’s contract with Boeing Defence UK (BDUK)?
A: This is a major contract (Apache helicopter training device upgrade) which is helping to drive CY performance and includes a significant underlying software component. Valued at £8.8m, the contract was announced in March 2022 and we note from the update that good progress is being made – good news.
Q: How do you see the forecast for the future?
A: H2-23E will benefit from progress with Boeing as well as a range of other contracts / projects plus the TAP acquisition. With gross margin upside, revenue forecasts are pared without impinging on profit forecasts, which are maintained, as is our 65p fair value threshold assessment. We continue to anticipate a net cash outcome to the year, while allowing for the costs of TAP. We see progressive forecasts and generally smaller but more profitable contracts in the wings (including software bids in the pipeline and the upcoming full launch of a new software suite. In more general terms, it is important to note the surge in global defence spending; as well as Pennant’s ability to supply the commercial sector in parallel (eg Rail).
Pennant International Group plc (LON:PEN) is a leading global provider of technology-based maintainer training and integrated product support solutions.
