Pennant International in great shape for the current financial period (LON:PEN)

Pennant International Group plc (LON:PEN) Chief Executive Officer Phil Walker caught up with DirectorsTalk for an exclusive interview to discuss their recent contract wins and how they will impact the business.

Q1: Phil, we’ve noted your recent announcement on contract wins, what else can you tell us about these wins?

A1: In terms of these contract wins, I’m pleased to report that Pennant International has enjoyed a successful second quarter of the year, especially in relation to business winning.

The contract wins we announced last week are noteworthy for a number of reasons:

Firstly, the latest wins are aligned to the company strategy of shifting the business mix towards the higher margin software and services. For example, the largest win we announced was AU$5.2 million contract supportive defence programme supplying software and technical services over 5 years which is great news for us and great news for our Australian team.

It’s also worth highlighting that this contract represented the first sale of our new GenS product. The GenS software which was launched in May is our successor product from our OmegaPS and it will form a part of our full IPS Suite which is going to be launched early next year. This contract with the Australian Defence has enabled us to sell product early which is great news for us and great news for the investment we’ll make in that software solution.

In terms of other wins, we also landed an AU$1.2 million contract for the expansion of an existing Australian contract we’ve got in a RAF base there. It’s providing specialist facilities and services over 5 years so another nice win, another services win.

In Europe, a market that has been historically underrepresented for the company, we secured a £250,000 software licence to a European defence department, albeit smaller in value, its margins have a different profile to our services and historical business. It also demonstrates the need for our software in that European market which is a great and exciting time for us.

Finally, the group was awarded a £130,000 contract for the delivery of railway mapping services in the UK. As we discussed in our last interview in April, we acquired a business called Track Access Productions, Track Access are a provider of driver training, route mapping services, route services and this is the first win as the new entity. The integration has progressed smoothly and the business has now started to demonstrate how successful it could be by winning this type of work.

So, a good period.

Q2: What impact will these new contract wins have on Pennant International?

A2: There’s a number of impacts, both financial and operational.

The first point I want to make is that these wins demonstrate our commitment to delivering those higher value recurring subscription-based revenues and trying to improve the visibility of earnings. I think we’re up to about 80% of our revenue now coming from software and services, which is great.

The nature of these contracts i.e. software and services based means that operationally, the business has the capacity to implement. The only incremental cost is direct labour if required but we have resources that can be deployed.

In terms of the financial impact, we previously announced we had about £13 million of contracted revenue for this year, which was scheduled for delivery. These new wins largely underpin our analyst forecast of £16 million and with a revenue target of £16.6 million and 1.9 of EBITDA.

Some of these services we won will be realising in ‘24 and beyond but we’re in great shape for the current financial period.

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