It’s been a frightful Friday for shareholders in FTSE 250 firm NCC Group (LSE: NCC). Shares in the cybersecurity and information-assurance group collapsed today, following a profit warning.
NCC stock almost halves
On Thursday, this tech company’s shares closed at 153.2p. At this morning’s low, the stock had crashed to just 75.8p. That’s a collapse of 77.4p, with the shares more than halving in value, down 50.5% at rock-bottom.
As I write, NCC’s share price has rebounded to 98.5p. This leaves the share down by more than a third (-35.7%) overnight. That’s a brutal loss of value for shareholders.
Even worse, at its 52-week high on 12 September 2022, NCC’s share price peaked at 245p. It has now lost almost three-fifths (-59.8%) from that top.
Here’s how the shares have performed over seven different periods:
| Current price | 98.5p |
| One day | -35.7% |
| Five days | -39.2% |
| One month | -42.2% |
| Year to date | -50.8% |
| Six months | -54.9% |
| One year | -46.1% |
| Five years | -48.6% |
This table suggests that 2023 will be a year to forget for NCC shareholders. But what went wrong?
Those profit-warning blues
In an update, NCC warned that market conditions for its US clients had deteriorated. Confidence fell after the failure of three mid-sized, tech-focused US banks.
Due to weakening demand, the group lowered its earnings guidance. In November, NCC forecast group adjusted operating profit of around £47m in its latest financial year. It has lowered this figure to between £28m and £32m — a decline of at least 31.9%. Hence, its shares took a big hit this morning.
As well as warning of weaker North American markets, NCC also said UK growth was also slowing, but at a lesser rate. As a result, it forecasts revenue growth in the low single digits, versus the high single digits NCC set out in its interim results.
In response to this expected downturn, NCC is reviewing its cost base. This might lead to job losses at the Manchester-based business.
With clients delaying or cancelling orders, things could get worse before they get better for NCC. So where does this leave its stock?
FTSE 250 status at risk
After today’s collapse, NCC’s market value has dived to £307.3bn. That’s about 30% of its peak valuation — reached in September 2021, months before the US tech bubble burst.
One setback is that NCC’s market cap has plummeted so hard that it is now the smallest company in the FTSE 250. Without a valuation rebound of maybe £90m to £100m, the group might be relegated from the mid-cap index at the next quarterly shuffle.
If NCC were to exit the FTSE 250, some fund managers would have to sell this stock in order to meet their investing mandates. I suspect that would not be positive news for the shares.
What’s more, NCC’s trailing dividend yield of 4.7% a year (covered 1.7 times) may be at risk if the group needs to preserve cash. Hence, a dividend cut may be on the cards.
Lastly, NCC’s share price may rebound when tech spending finally picks up again. It could also become a takeover target to be swallowed up by a larger tech rival. And cyber-security is a ‘hot button’ industry for future growth.
Nevertheless, this FTSE 250 stock is too risky for me right now!
