RE: TU8 Feb 2023 09:33
From Sept 22 - but still relevant
A below the radar recovery play
A supplier of products and services that train and assist engineers has returned to profit and a growing order book supports forecasts of material profit growth.
September 21, 2022
By Simon Thompson
Adjusted operating profit of £0.1mn reverses loss of £1mn in first half of 2021
Gross margin more than doubles to 41 per cent
Current net debt of £2mn set to be wiped out by year-end
Three-year order book worth £27mn
Pennant (PEN:29p), an Aim-traded supplier of products and services that train and assist engineers in the defence and civilian sectors, reported a small underlying operating profit in the first half of 2022 despite reporting a decline in revenue from £7.4mn to £6.9mn, a reflection of the shift to higher margin software activities and the wind down of an onerous loss-making legacy armoured vehicle contact with the MoD.
Since the start of the year, the group’s software and services business has grown its first half revenue by 40 per cent to £3.6mn, accounting for more than half of group revenue for the first time. This explains why two-thirds of revenue is now recurring in nature, thus removing the lumpiness of contracts that have dogged Pennant in the past.
In addition to offering two proprietary software product suites, OmegaPS (a sophisticated logistics data tool) and R4i (a dynamic technical documentation solution), the group provides repeat consultancy, support and maintenance services on both software suites to many customers, including the Canadian and Australian defence departments and their respective supply bases.
During the summer, Pennant booked £1mn of software and equipment upgrades, lifting the total order intake to £12mn during 2022. The closing three-year order book of £27mn includes £12.2mn of revenue for delivery in 2023, more than half of which is for software related activities. The directors note that the sales pipeline for this side of the business now exceeds £20mn, highlighting multiple opportunities in the United States, Canada and Australia.
Pennant’s technical training business line, focused on the design and build of generic and platform-specific training technologies, is showing momentum, too. Having landed a three-year contract worth £8.8mn to supply simulated training systems for the British Army’s new Apache AH-64E helicopter fleet, the directors note that defence procurement activity continues to increase this year, particularly in relation to new and upgraded vehicle platforms in the UK. In fact, chairman John Ponsonby says that in the “prevailing global security situation, we are seeing real signs that defence procurement programmes are unlocking in our key regions, with several new opportunities already being pursued.” This aligns well with Pennant's training systems engineering capabilities, and prospects to convert some of the £30mn contract opportunities in its sales pipeline.
Sign In
Follow the stocks
