Pennant international Group Plc (LON:PEN) is the topic of conversation when we caught up with WH Ireland Director of Institutional Research Nick Spoliar.
Nick we see you published a new note on Pennant International, what were the key points investors should note?
We view the IR23 defence review as positive for Pennant in its broad themes. The defence establishment, given the financial constraints, effectively will need to do more with less. Pennant’s software / training equipment, designed to enhance maintenance and the life-cycle of expensive hardware, supports doing exactly that. Other IR23 (and IR21) themes are: constant preparedness (also a positive for Pennant) and agility (in our opinion, clearly plays to software which is a growing proportion of Pennant’s revenues).
How have your forecasts for Pennant changed?
We have added a forecast for FY24E for the first time. The forecast is progressive in profit terms (FY24E PBT forecast +17% YoY), not in overall revenue terms. The reason is that the mix change into software with higher margin software business forming a higher proportion of the whole enables Pennant to generate more profits from fewer revenues.
How do you see the outlook for the company?
The overall outlook is clearly excellent given Pennant’s status as a provider of essential equipment to (among others) a range of defence-orientated OEMs at a time when defence is a more important UK government and global concern than it has been for 40 years. At the same time, Pennant’s shift towards software (underpinned by a secular shift in its clients’ needs and aspirations) is helpful, while also generating a greater degree of repeat earnings (c.50% currently). This is a major strategic driver for the company, which is seeing more granular contracts in its bid pipeline, at higher margins, and fewer large, lumpy and less profitable equipment contracts. We expect a positive update from the company about all these themes when they report FY22E in a month’s time, following on from the recent positive trading update.
Pennant International Group plc is a leading global provider of technology-based maintainer training and integrated product support solutions. With innovation being a core strategy for growth, the business can offer a diverse range of products and services, resulting in fully integrated turn-key solutions.
