3 UK cyber security stocks: BAE Systems plc, BT Group plc and NCC Group plc

Cyber security is a critical issue for governments, businesses and individuals around the world right now. Safeguarding network assets and data has become far more challenging in recent years with the exponential growth in complex, targeted cyber attacks.

More than ever, governments and businesses need to ensure that they’re fully protected from cyber threats, and for this reason, I believe cyber security is an interesting long term investment theme.

Here are three UK companies fighting cyber crime.

An evolving threat

BAE Systems (LSE: BA) is generally known for manufacturing ‘traditional’ defence products such as aircraft, submarines and weapons.

However it’s realised that the nature of defence has evolved considerably in recent years. It’s no longer just about physical protection, but also cyber protection. Defence now involves stopping highly organised, smart, criminal groups from stealing intelligence and capital. As such, BAE Systems’ goal is to provide protection across both the physical and virtual worlds.

While the company has a 40-year heritage of working in data and security, it made a serious statement of intent in 2014 when it acquired SilverSky, a leading commercial cyber security services provider.

Cyber security only contributed 6% to BAE Systems’ revenues in 2015, but I believe this will be a huge growth area for the company going forward.

With the stock trading on a P/E ratio of 12.7 times next year’s earnings, and paying a healthy 4.2% dividend yield, BAE Systems looks like an interesting play on the cyber security theme in my opinion.

Recruitment drive

BT Group (LSE: BT.A) is another company that probably isn’t known for cyber security as a speciality.

Yet the provider of phone and TV packages also addresses the entire range of consumer, business and governmental security needs, from simple antivirus products through to complex managed security solutions used by multinational companies and governments.

Its marquee product – BT Assure Cyber – is a comprehensive and fully-integrated cyber security product for large organisations. Originally designed to assist the Ministry of Defence, Assure Cyber specialises in quickly analysing masses of data to spot vulnerabilities, freeing up time for analysts to focus on critical threats.

Cyber security is still a small segment of BT Group, yet with the company recently recruiting 900 new staff members to work in the security business, the company clearly has plans to expand this sector.

On a P/E ratio of 14.1 times next year’s earnings and sporting a 3.3% yield, BT Group looks reasonable value to me.

Pure play on cyber crime

For a ‘pure play’ on cyber security it’s hard to look past FTSE 250 company NCC Group (LSE: NCC).

NCC Group specialises in protecting businesses against the ever-evolving threat landscape, and the company has lofty ambitions to become the leading player in the global cyber security market.

After a string of acquisitions in recent years, the company is riding a wave of momentum, and a trading update in April revealed revenue growth of 60% for the 10 months to the end of March.

Long term, NCC Group shareholders have done very well, enjoying compounded annual gains of around 27% per year over the last five years. And while the stock isn’t cheap on a P/E ratio of 25.7 times next year’s earnings, I believe there’s definitely more to come from this mid-cap stock.  

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Edward Sheldon owns shares in BAE Systems and NCC Group. The Motley Fool UK owns shares of NCC. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.