NCC Group: Unlocking Cyber Value

Cyber threats continue to escalate, prompting firms to outsource complex protection needs. Global cyber spend is set to reach $213bn in 2025 and rise further in 2026. NCC’s global delivery model, technical depth, and new Philippines centre position it well to serve enterprise clients in penetration testing, threat mitigation, and compliance. H2 showed stabilisation, with Cyber revenue decline easing to ~1.5% HoH versus 6.3% in H1. Margins improved to ~36.5% as offshore delivery scaled. With peers like Darktrace now private, NCC remains one of the last listed UK cyber consultancies.

Escode remains one of the UK’s highest-quality B2B assets, providing mission-critical software escrow for 10,000+ clients, including half the Fortune 500. FY25 revenue grew ~2% to £66.5m with ~71% gross margins and no real competitor of scale. Regulation continues to drive adoption, and private equity bidders have valued Escode at £300m–£400m. The review process remains active and credible, with management confirming an update will follow. A divestment could unlock value and sharpen NCC’s cyber focus.

NCC has cleared £50m+ in net debt and ended FY25 with ~£13m net cash, leaving the balance sheet strong. The Escode review is ongoing, while the Cyber business could also be sold or re-rated separately. Collectively, both units could still be worth £600m–£800m versus a ~£460m market cap. A buyback programme will commence post-results in December, signalling confidence and shareholder alignment. With long-term holders such as Harwood Capital on the register, NCC remains a potential UK breakup story.

• Cyber performance stabilisation: Monitor if revenue decline narrows in H2 (-1.5% HoH vs -6.3% in H1), suggesting early signs of improvement. Sustaining this trend could support near-term sentiment.

• Re-rating as Focused Cyber Pure-Play: If Escode is divested, NCC may be valued more closely to cyber security services peers, providing potential re-rating opportunities.

• Escode Sale Process: The review remains ongoing. The sale would strengthen the balance sheet, fund the announced share buyback, and provide greater strategic clarity.

• Strategic Review Clarity: The Board continues to explore options for the Cyber division, including potential separation. Any outcome would reshape the group’s profile and capital allocation.

• Shift to recurring revenue: The transition towards managed service contracts is expected to improve visibility and margin profile from FY26.

• Capital returns: Net cash of ~£13m and disposal proceeds (if realised) provide capacity for dividends or buybacks under the existing policy.

While cyber remains a top corporate priority, budget cycles remain pressured. FY25 Group revenue declined ~2.5%, with Cyber down ~4% to £227m, though H2 trends improved versus H1. The pivot toward higher-margin, long-term services continues, but a slow ramp in bookings could weigh on near-term earnings.

NCC’s turnaround hinges on divesting Escode, scaling Cyber, and unlocking SOTP value. Delays or price disappointment in the Escode sale could dent sentiment. If Escode is sold but Cyber fails to re-accelerate, investor confidence may waver.

Cyber consultancy remains crowded, and wage inflation and offshore delivery risks could impact margins. FY25 Cyber gross margin stabilised at ~36.5%, but sustaining quality while controlling costs is a balancing act.