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Back in September last year we wrote a post going through the top five most shorted UK companies (as per FCA disclosure). Recently two of these have seen important news-flow so we thought it was worth writing an update.
Lets start with the more significant news first: NCC Group, who agreed a sale of its major subsidiary Escode. The price to be paid is £275m (EV) or approx. £250m after all settlement costs (including transaction costs). That is way below market expectations at a sale price of under 9x EBITDA. As we wrote back in September:
“My suspicion is that the Escode “price-tag” could be on the punchy side given that it is a reasonably mature business and £300-400m would represent 11-15x trailing ebitda even without central cost loading.”
So it has proven. And the sale price includes the disposition of a considerable chunk of change - £46.7m netted off against an EV price of £309m balanced by working capital liabilities and residual indebtedness in that business:
The gross consideration payable by the Buyers in connection with the Transaction is £309.1m, payable in cash on Completion of the Transaction, subject to estimated net cash (£46.7m) and certain adjustments for indebtedness and working capital (against an agreed working capital target) of £34.1m remaining with the Escode business and any other costs and expenses under the terms of the Sale and Purchase Agreement. Net cash proceeds (pre-transaction costs and any completion accounts adjustments) for the Group are expected to be £262.4m. Total transaction costs are expected to amount to c.£10m.
There seems to have been quite a high-wire act to get the headline gross price above £300m to stay within reach of apriori market expectations. The unmentioned net-net number of (presumably) around £250m went down like a bad smell during a church service.
Here’s our September 2025 reasoning (my added emphasis):
Anyway - lets play along with this for the purpose of some napkin maths. A few years back at the tail end of Covid, NCC paid around 10x for Iron Mountain’s escrow and resilience business. If we are generous and take 12x EBITDA for Escode on an annualised (from H1 25) £30m EBITDA (punchy), that would represent £360m, while £110m on the residual cyber security business would get you to £470m market cap (as net debt is currently negligible). So far so good - £470m is close to the current market cap at 150p per share.
However, throw in a further £7m per annum of central costs (maybe capitalised as a £50m NAV deduction), and additional “software investment amortisation” along with some balance sheet funnies (eg £24m contract assets in H1, and chunky but declining deferred revenue), you could make a case for the value of the shares being much lower, perhaps well below £400m. Hence, I guess, the case for the shorts, presumably buttressed by the risk of a lower sale price for Escode.
Well now instead of that £360m we have roughly £250m. If we still keep a value of £110m on the residual business we would now be closer to a sticker value of £360m, perhaps lower with additional costs/offsets. Sticker shock! Yet current market cap at £1.34 a share is just over £421m, £60m higher.
After the paywall jump more on NCC’s valuation and residual earnings, and some thoughts about Ashtead Tech’s soft landing.
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