Pennant International Group “Look at the leap in gross margins” Analyst Nick Spoliar

Pennant International Group

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

Pennant International Group plc has provided a trading update ahead of publication of the Company’s full-year results for the year ended 31 December 2022, Nick what are your thoughts on the financials?

Pennant is doing well, financially.

· Look at the leap in gross margins from 27% to 42%. (2)

· They have generated sustained profitability at an EBITA level for successive reporting seasons now.

· Profits are bang in line – lending increased assurance to next year’s £1.2m adj. PBT number (and beyond).

· Net debt has come rattling down.

What has driven the growth in profitability?

There’s a combination of factors, but the most important driver is relentless management focus on re-engineering this business to make it strong and future-proof further down the line. Key points are the cost realignment undertaken in recent years, the progressive exit from the onerous MTE (GD) contract and, last but not least, the mix change into software from the company’s traditional training devices, which (1) lifts margins, and (2) creates a more balanced business. Evidently the business was impacted by Covid to a degree – from that perspective, they have been dealt lemons and made lemonade.

How do you see the outlook for the company?

I’m optimistic about their outlook. Notably the order book is strong, with 78% revenue cover against our forecast for the current year, and further cover for next year and the year after. There are some major training contracts ongoing, such as Boeing, but also a number of opportunities in software which should crystallise in ’23-’24.

One interesting feature of the announcement they made yesterday is that it is clear that the company – given its improved cost structure and increased exposure to higher margin software business – has a more attractive break-even point than in the past, and indeed could potentially put on more sales with relatively less extra resources, a recipe for increased profitability.

Of course, the fundamentals, the situation in the defence sector globally, notably, is more positive than it has been for 30-plus years, given the increase in global tensions.

Pennant International Group plc (LON:PEN) is a leading global provider of technology-based maintainer training and integrated product support solutions.

The extensive portfolio for Pennant’s training technology solutions and ILS Software (OmegaPS and R4i) is achieved through our two operational divisions: Technical Training and Integrated Product Support.

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