Pennant International Plc (LON:PEN), a leading provider of software, integrated product support, and complex training systems, continues to make strides towards its ambitious transformation. In a report released by Zeus Capital, analysts Nick Spoliar and Charlie Cullen highlight how the company is turning a corner with promising results for the first half of 2024, setting the stage for continued progress into the future.
The company’s half-year results showcase an encouraging picture. Revenues reached £7.4 million, a 4% year-on-year increase, with a significant boost coming from the final instalments of a major Boeing contract. Software-related revenue now accounts for nearly half of all sales, a significant shift for Pennant, which historically focused on engineering contracts. Gross margins also saw an increase to 47.6%, up by 50 basis points from the prior period, indicating improved profitability as the company enhances its business model.
According to Nick Spoliar, Pennant’s ability to shift its focus towards higher-margin, recurring software revenues is a key driver for future growth. He explained, “The continued shift towards software is not only exciting but positions Pennant for sustainable long-term profits. As software revenues rise, we expect this to underpin stronger margins and more predictable income streams.”
One of the most promising aspects of Pennant’s strategy is the focus on recurring revenues through subscription models. With software expected to represent up to three-quarters of future sales, this move will significantly improve the predictability of earnings. Additionally, cost-saving initiatives are already yielding results, with an expected £1.2 million in annualised savings from restructuring, which will support the company’s ongoing transformation.
The company’s efforts to strengthen its balance sheet have also been highlighted. A notable example is the sale of a freehold property in Cheltenham, which is expected to release meaningful value and further support the business’s long-term goals.
While the UK government’s spending slowdown is acknowledged, Charlie Cullen remains optimistic, noting that the slowdown is unlikely to impact Pennant’s major software launches slated for late 2024 and early 2025. “The upcoming software launches should accelerate Pennant’s progress, and the company is already well-positioned to capitalise on these opportunities,” Cullen said.
On a cautious note, Zeus Capital has slightly adjusted its revenue forecast for the full year 2024 to £14.4 million (from £14.8 million) due to the changing landscape, but the analysts remain confident in the company’s strategic direction. The transition towards a software-driven model, alongside efforts to streamline operations, points to an exciting future for Pennant International.
Final Thoughts
With positive momentum building, Pennant International is taking the necessary steps to reposition itself for long-term success. The shift towards software and recurring revenues, coupled with strong cost-saving measures, will likely enhance both profitability and stability. As Nick Spoliar noted, Pennant is now “undertaking the hard yards” of its transformation, and the results are already beginning to show. Investors can look forward to further positive developments as the company continues its journey towards a more sustainable, profitable future.
