NCC Group PLC: Leveraging Asset Optimization and Cybersecurity Growth for Shareholder Value

NCC Group PLC (LSE:NCC) is undergoing a strategic transformation that could position it as a leader in the rapidly evolving cybersecurity sector. By divesting non-core assets like its Escode software escrow business and refocusing on high-margin cybersecurity services, the company aims to capitalize on growing demand for digital security solutions. This pivot, combined with a potential shareholder-friendly capital return, presents a compelling opportunity for investors willing to look past near-term headwinds.

Asset Optimization: The Escode Sale and Capital Return Potential

The sale of Escode, NCC's software escrow division, remains a key catalyst for value creation. Despite being under discussion since April 2025, the transaction could unlock significant proceeds. Escode reported steady growth in H1 2025, with revenue rising 1.2% to £33.3 million and Adjusted EBITDA of £14.8 million—its tenth consecutive quarter of year-on-year growth. This cash-generative business is now being considered non-core as NCC shifts focus to cybersecurity.

While the sale terms remain undisclosed, the precedent set by the March 2025 disposal of Fox Crypto for £65.6 million suggests Escode could command a similarly robust valuation. If concluded, the proceeds would complement NCC's improved balance sheet: net debt was eliminated in March 2025, and a new £120 million revolving credit facility offers further flexibility.

The company has explicitly tied the sale to a “significant return of capital to shareholders,” likely via dividends or buybacks. This aligns with NCC's 20-year dividend-stable track record, which it maintained at 1.50p per share despite strategic shifts. A would reveal a consistent payout despite market volatility, reinforcing investor confidence in its capital discipline.

Cybersecurity: Tailwinds for High-Margin Growth

The cybersecurity market is booming, driven by rising global threats, regulatory demands, and the shift to hybrid work. NCC's pivot to high-margin services like managed security, identity management, and operational technology (OT) security positions it to capture this growth.

The company is already reconfiguring its cybersecurity division to focus on strategic client relationships rather than commoditized compliance work. While this transition caused a 6.6% revenue decline in H1 2025, CEO Mike Maddison anticipates a return to growth by FY2026. The expansion of its global delivery model—bolstered by a growing team in the Philippines—lowers costs and enhances scalability, further supporting margins.

Near-Term Challenges and Valuation Considerations

NCC's near-term outlook includes headwinds. The cybersecurity division's revenue is projected to fall ~5% in FY2025 as it transitions away from lower-margin work, and the Escode sale's timing remains uncertain. These factors may pressure short-term earnings and valuation multiples.

However, NCC's shares currently trade at a 30% discount to its five-year average P/E ratio, reflecting these concerns. A would likely show undervaluation relative to cybersecurity peers like CrowdStrike or Palo Alto Networks, which command higher multiples for their growth profiles.

Investment Thesis: A Compelling Risk-Reward for Long-Term Investors

The strategic moves—asset sales, deleveraging, and focus on high-margin cybersecurity—create a favorable risk-reward profile for patient investors. Key positives include:
- Capital Return: Proceeds from Escode could enable shareholder-friendly actions, enhancing total returns.
- Market Tailwinds: Cybersecurity spending is projected to grow at ~10% annually, favoring firms with niche expertise.
- Operational Efficiency: Cost savings from global delivery models and strategic client focus could boost margins.

Conclusion

NCC Group's transition is not without risks, particularly execution on the Escode sale and near-term revenue declines. Yet the combination of balance sheet strength, a scalable cybersecurity strategy, and potential capital returns positions it as a compelling play on digital security's growth. For investors willing to look beyond short-term noise, NCC offers a rare blend of value creation and exposure to a secular trend. The stock's current undervaluation and dividend stability further justify a long-term bullish stance.

Investment Advice: Consider a gradual build-up in NCC shares over the next 6–12 months, targeting dips below £10. Monitor progress on the Escode sale and cybersecurity pipeline execution as key catalysts. While risks remain, the strategic clarity and potential upside make this a disciplined buy for growth-oriented portfolios.