I'll not re-hash today's trading update from NCC (NCC), you can read it for yourself here, but suffice to say, it was not what the market expected. Nor will I lie, this blind-sided me too, an arrow through the heart of my Valentine's day article.


Perhaps most interesting is the number of seemingly-unrelated issues that have coalesced into a stuttering end to the year. What this seems to imply is that NCC has perhaps gobbled down too many acquisitions in too short a time, becoming a sort of corporate version of the grotesque Mr Creosote from Monty Python's The Meaning of Life.


By my count, the IT security business has wolfed down about 10 acquisitions over the past three or four years, quite an appetite. Getting a foothold in the vital US market was the right thing to do. But as the sharp-eyed Ian Spence, at tech researcher Megabuyte, explains, trip hazards have caught the company out in spite of otherwise positive market dynamics in the Assurance part of the business.


'Two issues seem to have dogged the business over recent months,' says Spence. 'The iSEC business came to the end of its earn-out in August and this seems to have created a hiatus in business development leading to underperformance.' The second issue appears to have emerged from integrating New York-based Intrepidus, 'specifically, sales execution issues,' says Spence. Even so, the Assurance arm is still likely to report revenues up 16% for the year to end May, '9% organic,' according to the analyst. Whether this pushes out NCC's 20% margin target, especially given the initial investment in iSECURE, will no doubt be asked come results day in July.


But I don't think having a pop at chief executive officer Rob Cotton would be right or fair. He deserves credit for building a genuinely international IT security business over the years out of NCC's old escrow roots. Since 2008, it has grown revenues 175%, taxable profits 164% and earnings per share (EPS) over 140%, based Investec's 2013 8.2p estimate. The broker is looking at shaving 4% to 5% off 2013 estimates. Investors have quite reasonably bought the NCC story in the past as a relatively safe growth company in the hot cyber security space. That hasn't changed, but it does illustrate that carving out a place in valuable markets is neither fast or risk-free.

Issue Date: 18 Apr 2013