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NCC Group – continues acquisition strategy despite announced “number of setbacks” in trading

By Steve Moore | Tuesday 15 November 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Writing last month on NCC Group (NCC) on the back of a confusing profit warning or not announcement which included “difficulties with” and “challenging” previous acquisitions, I noted despite this and a £47.5 million net debt position, the company looked to “continue with our measured acquisition strategy and anticipate acquiring additional boutique cyber security consultancies over the next few months”. There is now an announcement of “Acquisition of US cyber security consultancy”.

This is an initial $4 million and up to $6 million deal for Boston, Massachusetts-based Virtual Security Research, LLC, with NCC considering it “an important addition to our US office network and will provide a foundation stone to grow our coverage in Boston and in the North East of the US”. It adds the acquisition “earnings enhancing and financed from existing debt facilities and internally generated cash flow”.

Hmmm. NCC’s October “Trading update for first four months” announcement argued “remains in line with the board's expectations”, but also included “it is too early to quantify the likely impact in the current financial year, as the group is taking the necessary action to mitigate… a number of setbacks” - including those noted with previous acquisitions.

This saw me question how the company can then claim to ‘remain in line’ and state an avoid stance with the shares just under 225p. They are now sub 200p and thus further down from the heading towards 350p they had been at before the October announcement.

As noted then, the sharp decline may prove overdone, but is the result of a confusing update and with also the company continuing to acquire despite the recent noted “number of setbacks”, for now I continue to avoid.

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