Pennant International Group (LON:PEN) is the topic of conversation when we caught up with WH Ireland Analyst Nick Spoliar.

Pennant International has announced the acquisition of the rail services business, Track Access Productions, what are the key points investors should take from this news?

The key points stem from the company’s long-term commitment to building a growth business which is sustainable, profitable and encompasses high quality and visible earnings. The TAP acquisition is extremely well aligned to this core strategic objective and, while small, will generate some instant results from this point of view. Notably:

• TAP brings Pennant an increase in high-quality software-related earnings
• with 50% repeat earnings in TAP’s portfolio and an attractive, subscription-based contractual model, it patently reinforces Pennant’s strategic commitment to increased underpinning of forecasts by visible, contractual revenue streams, and
• while Pennant already has business in the rail sector, this is an amplification of that business which supports the objective of increasingly diversified earnings.

With a sustainable, profitable business acquired in the shape of TAP, we have upgraded our forecasts from PBTA £1.4m to £1.6m for FY24E, suggesting a single digit PE in respect of next year’s numbers, an attractive entry point for investors.

How do you see the outlook for Pennant?

The company is making good progress with a major profit swing to be announced with the forthcoming results (as previewed in the pre-close update in February). We are forecasting a further upward shift in the current year from our £0.2m PBTA expectation FY22E to an anticipated FY23E £1.3m, with progressive forecasts for FY24E as well. The strength of the outlook is based on (1) proactive actions by Pennant in marketing its wares, and in particular in moving the business mix further into high quality, largely software-related earnings, (2) proactive action in cutting costs and reducing the threshold for generating decent profits, (3) the buoyant global defence sector which effectively accounts for a significant proportion of Pennant’s business, and (4) the attractions of its products across diverse markets ranging from defence and aviation more generally to rail.

What news flow do you hope to see from the company over the coming months?

I expect results next week to show meaningful uplift on FY21A as reflected in our forecasts and to point to the future path to significantly increased profitability. This will also continue to be underpinned by the company’s order book – Pennant publishes regular news on key developments, and FY23E is already well-supported by the 80%-plus of FY revenues in its order book. Beyond this, the company has flagged an impressive bid pipeline, with potential conversions which could be a feature of newsflow between now and the end of the year. We expect to hear of further progress with its technology products, building on investment which has previously been announced, and with demand continuing to be strong for these products.

Pennant International Group plc was established over 60 years ago and is a leading global provider of technology-based maintainer training and integrated product support solutions. The Group operates worldwide, with offices in Europe, North America and Australasia. The extensive portfolio for Pennant’s technology-based training solutions and ILS Software (OmegaPS and R4i) and services is achieved through its global teams.