Dutch crypto sale to clear debt at NCC Group
Manchester-based tech business NCC Group has agreed to sell Fox Crypto, part of its European Cyber division in the Netherlands, for c.€77m (c.£66m) to CR Group Nordic AB.
The deal is due to complete in October 2024 for cash on completion.
The unit contributed revenue and EBITDA of c.£18m and c.£4m respectively in the 12 months ended 31 May 2024 and the valuation was therefore based on an EBITDA multiple of 16.5x.
Fox Crypto, which creates and manage cryptographic products for encryption services, was previously a standalone entity, and the company insists the disposal will not impact the Group’s continuing Cyber capabilities.
As reported on theBusinessDesk.com yesterday, as NCC released its annual unaudited results, group net debt at 31 May 2024 was £38.5m.
The expected net proceeds of c.€74m (c.£62m) will clear the debts and “facilitate organic and inorganic growth in the Group’s Cyber Security business.”
In a statement to the Stock Market this morning, attributed to Guy Ellis, Chief Financial Officer, the company said the disposal represents “a continuation of the Group’s transformation strategy to simplify the business and create a more focused Cyber Security business”.
It added: “Both our Cyber and Escode businesses provide the benefit of a portfolio effect to the overall Group performance with clear future growth opportunities to enhance shareholder value.”
IA Global Capital served as the exclusive financial advisor to NCC Group on this deal.
Activist shareholder Kelso, which says NCC is undervalued, welcomed the deal on the back of what it described as “a strong set of preliminary final results from NCC” yesterday.
Revenues for the period dropped from £335.1m in 2023 to £324.4m. A pre-tax loss for the 2024 period of £27.7m is compared with a pre-tax loss of £4.3m the previous year.
“Kelso continues to believe that the underlying valuation of NCC, with its two discreet businesses in Cybersecurity and Escrow software, is significantly greater than the current market capitalisation.”
At close of trading yesterday (1 August 2024) NCC shares were 147p, valuing the business at £455m.
Chief executive, Mike Maddison, said yesterday that the group’s transformation journey is “progressing well and is already delivering results, however, work continues.”
“We have enhanced our capabilities in Cyber and diversified our routes to market, developed differentiated brands and implemented a global resourcing and scheduling model enabled by a new delivery and operating centre,” he added.
Investment bank, Panmure Liberum, maintained its Buy call on NCC’s shares today, proclaiming the group is ‘no longer fighting fires’.
Analysts Andrew Ripper and Harvey Robinson, wrote: “NCC’s final results were long on detail but relatively short on guidance, which partly reflects the shift to September year end and a budget process which will lead into 16M results in December.
“Our take-aways include 1) the executive team are no longer firefighting 2) North America is skewed to Assurance and still a tough market 3) Cyber 2H gross margin of 38% is the best transformation proof point to date, albeit helped by missing the summer lull 4) the profit recovery in 2H suggests that FY25E is under-pinned and 5) the Fox disposal (16.5x EBITDA) demonstrates the potential value, subject to improving Cyber margins.
“The big strategic question remains the future of Escode, which we value at between £250m to £300m. We raise our TP (share target price) from 170p to 190p, on rolling forward, and remain Buy.”
