Concurrent Technologies: A Strategic Turnaround or Fleeting Optimism?

Concurrent Technologies (LON:CNC) has emerged as a compelling case study in the intersection of strategic innovation and capital efficiency. Over the past year, the company has reported robust revenue growth, with FY24 results showing a 27% increase to £40.3 million and a 40% rise in pre-tax profit to £5.2 million. However, its Return on Capital Employed (ROCE) has declined from 15% five years ago to 12% in FY24, raising questions about the sustainability of its turnaround. This article examines whether Concurrent's recent product launches and earnings guidance signal a durable recovery or merely short-term momentum.

The Product Launch Engine: Innovation as a Growth Catalyst

Concurrent's FY24 and H1 2025 performance was driven by three flagship products: Rhea, Hermod II, and Kratos. These offerings target high-margin sectors like defense, aerospace, and industrial computing, where demand for rugged, long-lifecycle hardware remains strong.

• Kratos, the most strategically significant, leverages Intel's 6516P-B processor to deliver compute power tailored for harsh environments. Its launch in early 2025 generated immediate traction, with the company reporting a 27% revenue jump in H1 2025 to £21.3 million. While exact revenue contributions from Kratos are unspecified, its unique positioning as the only board of its class with Intel's industrial-grade Xeon 6 processor has already secured a £3.4 million order from a European defense client.
• Hermod II, a 10 Gigabit Ethernet switch, and Rhea, a VME-compatible system, further solidify Concurrent's footprint in legacy and next-gen infrastructure. Together, these products align with the company's dual-unit structure (Products and Systems), enabling it to capture both incremental upgrades and large-scale design wins.

The market reception has been favorable, with design wins expected to ramp up over 2–3 years. For instance, a $6 million U.S. defense contract secured in FY24 is slated to contribute from 2027, underscoring the long-term revenue visibility. However, the absence of granular product-level revenue data for Rhea and Hermod II leaves some uncertainty about their immediate impact.

ROCE Dilemma: Capital Intensity vs. Long-Term Payoff

Concurrent's ROCE of 12% in FY24, while above the industry average of 9.7%, reflects a five-year decline. This is attributed to increased capital employed—driven by R&D, manufacturing, and Systems business investments. The Systems unit, which had been a drag on profitability, is now nearing break-even, a critical milestone.

The company's strategy hinges on the premise that these investments will compound over time. For example, the £1.1 million FY24 investment in the Systems unit is expected to unlock higher-margin contracts as design wins mature. Similarly, Kratos's early success suggests that Concurrent can monetize cutting-edge technology before competitors catch up.

Yet, the path to ROCE improvement is not without risks. The capital-intensive nature of hardware R&D and the long lead times for defense contracts mean that returns may lag. If the Systems business fails to achieve sustained profitability or if Kratos's adoption slows, the ROCE trajectory could stagnate.

Earnings Guidance and Market Sentiment

Concurrent's FY24 guidance and H1 2025 results have bolstered investor confidence, with the stock up 72% over five years. The company's full-year 2025 outlook—revenue of £43 million and pre-tax profit of £6 million—aligns with market expectations, suggesting a disciplined approach to growth.

However, the recent 70% stock price surge since 2024 raises valuation concerns. At a forward P/E of ~12x (based on FY24 earnings of 5.49p), the stock appears undervalued relative to its growth prospects. Yet, this multiple must be weighed against the company's ROCE trajectory and the competitive dynamics of the embedded computing sector.

The Sustainability Question: Short-Term Gains or Long-Term Value?

Concurrent's turnaround hinges on three factors:
1. Product Scalability: Can Kratos and Hermod II achieve mass adoption in defense and industrial markets? The £3.4 million Rhea order and $6 million U.S. contract suggest yes, but broader market penetration remains unproven.
2. Capital Efficiency: Will the Systems business transition from a cost center to a profit driver? The nearing break-even status is promising, but operational leverage must materialize to reverse ROCE declines.
3. Execution Risk: Can the company navigate supply chain disruptions and U.S. government contract delays? The CEO's emphasis on “accelerating time-to-market” implies agility, but execution gaps could derail momentum.

Investment Thesis

Concurrent Technologies presents a high-conviction opportunity for investors willing to tolerate short-term ROCE volatility for long-term growth. The company's product pipeline, strong order backlog (£5 million in Systems), and expanding U.S. presence (doubling its LA team) position it to capitalize on the $300 million VME market and the broader shift toward high-performance computing.

However, the investment case is not without caveats. The ROCE decline, while justified by strategic investments, requires patience. Investors should monitor the Systems business's profitability and the pace of Kratos adoption. A 2025 ROCE improvement to 14–15% would validate the company's capital allocation strategy.

Conclusion

Concurrent Technologies' recent performance and product launches signal a credible turnaround, driven by innovation in high-margin sectors. While the ROCE decline is a near-term headwind, the company's focus on long-life cycle products and strategic R&D investments positions it for durable growth. For investors, the key is to balance optimism about its product-led expansion with caution regarding capital efficiency. If the Systems business stabilizes and Kratos scales, Concurrent could emerge as a leader in embedded computing—justifying its premium valuation.

Final Verdict: Buy for long-term growth, but monitor ROCE trends and Systems profitability.