UK Small Caps

LONDON (ShareCast) - IT security assurance group NCC Group (LSE: NCC.L - news) put in a strong second half to its financial year to achieve its strongest performance in its five year history as a public company.

Group revenue in the year to 31 May rose 31% to £46.8m from £35.7m the year before, while adjusted pre-tax profits rose 17% to £12.3m from £10.5m.

The group remains highly cash generative and had reduced net debt at the end of May to £5.6m. The company expects to be debt free by August 2010.

The company's finance director Paul Edwards that the first half of the company's financial year "had seen a tick-up in terminations as customers looked to cut costs" but its software escrow division, which stores and verifies mission critical software code, had resumed strong growth in the second half of the year after a relatively flat first half, with organic revenue growth of 13% over the 12-month period.

The group's order book is in a healthy state with "around two-thirds of our projected revenue for this [financial] year already in the bag by 1 June," Edwards said.

NCC (Stockholm: NCC-A.ST - news) remains on the look-out for acquisition opportunities but Edwards said the current recession did not necessarily present it with the opportunity to snap up bargains.

"We don't buy cheap companies and we don't buy distressed companies. We don't kid ourselves that we are turnaround specialists. We want to buy a successful business and keep the people because, cliché though it may be, our people are truly our greatest asset," Edwards said, adding that the scope and depth of the knowledge required by its IT and sales people (to quote just two example groups) meant there was a very high barrier to entry for any potential competitors.

Any acquisition would have to complement NCC's existing business with a product or service its customers would regard as non-discretionary expenditure.

The big international player in NCC's area of software escrow is US data protection and storage giant Iron Mountain (NYSE: IRM - news) , which by virtue of first-mover advantage has snapped up many of the US companies NCC might have liked to add to its own US operations. "Iron Mountain has grown so big now that the escrow business seems like a bit of a sideline," Edwards said. "We'd love to buy their escrow division but they never to seem to sell companies, they only buy them," Edwards lamented.

The group is paying a final dividend of 6.25p, making a full year dividend of 9.25p, which is covered 2.5 times by earnings and represents a 32% increase on last year's dividend of 7p.