NCC is a cybersecurity business with a worldwide reach. It works with private and public sectors, has a presence in the UK, the rest of Europe, North America and, perhaps most important of all, a growing business in the Asia Pacific region.

The company is research-driven and has outstanding expertise in the cyber arena.

NCC shares 

NCC shares have taken a hammering since the Covid-19 crisis began. The share price fell from around 230p at the beginning of the year to 147p.

A superficial analysis would suggest that the fall in the share price is strange. After all, cybersecurity is supposed to be an area due to see rapid growth. A slightly more detailed look at the company reveals the reasons — many of its customers are struggling, and this will hit sales. Look deeper still, and the initial analysis looks about right.

Cybersecurity set to explode 

To describe cyber as an area likely to see rapid growth is like describing the sun as a region of our solar system where it is quite hot.

Cyber isn’t merely set to grow fast, business activity in this area will explode.

It was The Economist that said “data is the new oil,” and it was right. PwC projects that AI will contribute $15.7tn a year to the global economy by 2030. Data is to AI, what oil is to the internal combustion engine. It makes AI possible. However, the more data we use, the greater is the risk presented by cybersecurity.

Covid-19 and cyber 

I wonder whether the markets have understood the implications of the Covid-19 crisis and associated lockdowns in all of this. We have seen an acceleration in the move to digital. 

Post-Covid-19, I expect remote working to stay. The so-called Zoom economy is not going away, and this, in turn, creates a massive cybersecurity challenge. With employees working away from their offices, maybe accessing the internet via a router applying default passwords, the risks of data breaches grows enormously.

I expect the data economy to grow exponentially, and the risks of data breaches and need for robust cybersecurity to grow at a similar pace. Shares in companies that can offer expertise in this area may not necessarily increase exponentially, but I do expect them to increase pretty fast.

NCC has expertise in abundance. It is, by the way, working with the NHS and supporting its use of data from contact tracing apps. 

I think the fact that the NCC share price has fallen so far this year illustrates how the markets have not cottoned on to how the world is changing.

The lower share price means its P/E ratio has fallen from the giddy heights seen earlier in the year, while the dividend yield looks a lot more attractive — even if it takes a one-off knock this year, which I think is a distinct possibility.

NCC Group is due to provide a trading update following the end of its financial year to 30 May 2020 on 23 June. I, for one, am looking forward to it. As for the shares, I think they look tempting.

The post Why aren’t more investors talking about investing in this British cybersecurity company? appeared first on The Twelfth Magpie.

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Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK owns shares of NCC. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Growth story

Zoo Digital describes itself as a “leading provider of cloud-based subtitling, captioning, localisation and distribution services.” What that means in layman’s terms is that the group specialises in providing subtitling and dubbing services for content providers such as Netflix, which is a fast-growing market, given the rise in streaming services in recent years.

While the company’s subtitling services have powered revenue growth up to now, its dubbing services also look very interesting as the group has developed an innovative cloud-based platform which enables functions such as auditioning, recording and editing to be performed remotely from anywhere in the world. This could potentially disrupt the industry and the group stated in its full-year results that its dubbing services have opened up a “significant new axis of growth for the company.” So the story certainly looks exciting. But are the shares a good investment right now?

For the year ended 31 March, Zoo generated revenues of $28m, up 73% on the year before. That’s certainly a positive. Yet at the same time, the group reported a pre-tax loss of $5m, which demonstrates that it’s still very much an early-stage company. Looking at analysts’ forecasts, profitability is expected to improve this year. But the estimated earnings figure of 1.9 cents per share places the stock on a forward P/E of over 100, meaning that it’s priced for perfection. At that valuation, I’m going to sit on the sidelines for now. I do like the growth story here, but I’ll be keeping the stock on my watchlist for the time being.

Better value growth stock?

One stock that potentially offers more value right now (and one that I own myself) is cybersecurity specialist NCC Group (LSE: NCC). The company has had its problems in recent years after trying to grow too quickly through acquisitions. However, things appear to have stabilised, and with analysts upgrading their earnings forecasts for the group, now could be a good time to take a closer look at the shares. 

Full-year results released in mid-July showed that NCC has recovered from its recent growth issues. For the year to 31 May, revenue from continuing operations increased 8.3% to £233.2m. Adjusted basic earnings per share rose to 8.3p, up 34% on last year’s figure of 6.2p per share. Net debt was also reduced to £27.8m, down from £43.7m the year before.

Looking ahead, analysts expect the group to generate earnings per share of 9.2p this year which, at the current share price, places the stock on a forward P/E of 23.8. In a world in which demand for cybersecurity services is only likely to rise, and growth opportunities vast, I think that valuation is a fair price to pay for the company.

The post Zoo Digital’s share price is up 450% in a year. Is it too late to buy now? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in NCC Group. The Motley Fool UK owns shares of NCC. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The company operates in notoriously tricky sectors where competitive bidding processes often results in wafer-thin margins. As a result, it has averaged an operating margin of only 5% over the last five years. 

To make matters worse, the fees for these lengthy and complicated contracts are often agreed upfront and are therefore vulnerable to cost increases or unforeseen issues. Combined, these factors leave little room for error. 

Most recently, management announced that delays to both a significant contract and to PPP disposals means the company will close 2017 with between £875m and £925m in net debt and will certainly be breaching banking covenants. Given that the firm only made £124.2m last year, that’s a significant chunk of debt. There’s also no guarantee that it can return to these levels of profitability.

The balance sheet therefore needs significant rebuilding. The banks are onside for now and have extended the deadline for it to hit all-important financial targets to 30 April 2018. Carillion may have bought itself some breathing space to recapitalise, but I expect the imminent and essential fundraising to be incredibly dilutive to shareholders after the collapse in share price. 

Because of this virtually inevitable increase in share count, investors would be foolish to value the company on historical price-to-earnings ratios. Until the balance sheet has been repaired, I consider the shares un-investible. After all, the company’s financial fragility would put me off hiring it for any long-term contracts. 

A more favourable turnaround play

IT company NCC Group (LSE: NCC) has had a tough time of it recently too, but unlike Carillion, I believe its future could be very bright. The shares have fallen from highs of 350p in September last year to 226p today, but I believe the the company’s refocused strategy and growth headwinds in its markets means now could be a good entry point for investors. 

It has two segments that provide services, rather than products, creating repeat income. These are Escrow and Assurance. 

Assurance provides cyber security services including strategy building and testing. NCC claims that 90% of businesses have been the victim of some form of cyber crime and points out that a common DDoS attack costs on average £275,000 to recover from. The Assurance market is growing and NCC expects double-digit revenue growth form the department. 

The Escrow business acts as an intermediary between software users and developers, maintaining a copy of the original source code and therefore ensuring a business does not suddenly find itself unable to use a mission critical program. It is a cash-cow business with high-margins that is expected to show mid-single-digit growth.

The company has struggled to integrate a number of acquisitions. Over the next few years, it plans to focus on ‘self-help’ measures, indicating a break from bolt-ons until performance can be smoothed out. 

It trades on a P/E of 30 but given its impressive growth track record, I believe this is a fair price to pay for a good business in a growing sector. 

Don’t reach for yield

The post Why I’d swap Carillion plc for this turnaround champion appeared first on The Twelfth Magpie.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK owns shares of NCC. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Sanne Group

Sanne Group (LSE: SNN) provides outsourced administration, reporting and fiduciary services to asset managers, financial institutions, family offices and corporates. The company has over 1,000 clients across the Americas, EMEA and Asia Pacific and administers funds in excess of £160bn. The stock floated in April 2015 at 200p, and has surged to over 750p in less than two-and-a-half years.

The company is benefitting from strong demand for its services, as a result of increased regulation and cross-border investment, combined with the “growing expectation for independent oversight.” Through both acquisitions and organic growth, Sanne Group has enjoyed significant growth over the last three years, with its top line rising from £26m in FY2013 to £63.8m last year. Underlying earnings per share jumped from 13.9p to 17.4p last year, an increase of 25%.

The outsourcing specialist released interim results this morning, and the numbers look impressive. Revenue surged a formidable 104% to £56.3m, of which 15.3% was organic growth, and underlying profit before tax rose 105% to £20.9m. Underlying diluted earnings per share increased 60% to 13p, and the company lifted its interim dividend by 31% to 4.2p. Furthermore, management advised that as a result of a lower expected effective tax rate, full-year underlying earnings are expected to be marginally ahead of previous expectations.

The shares have pulled back a little this morning, which is probably not a bad thing after a near 70% rise in the last 12 months. I don’t think the current valuation of 31 times FY2017 consensus earnings estimates is unjustified, given the company’s growth history.

NCC Group

Another stock that could be worth a look right now, for risk-tolerant investors, is cyber security expert NCC Group (LSE: NCC). 

Shares in NCC Group enjoyed a strong rise between 2013 and 2016, as the company made a series of acquisitions that boosted its top line. However, in late 2016, it became apparent the cybercrime specialist had grown too quickly, and back-to-back profit warnings saw the stock plummet from above 350p, down to around 110p.

NCC is operating in a fast-growing industry, as cybercrime is one of the single biggest threats to businesses, governments and individuals in today’s world. So the vital question is – can the company turn things around? I’m inclined to think they can.

City analysts forecast net profit of £20.7m for FY2018, a significant rebound from the £56.6 net loss recorded in FY2017, and earnings per share are expected to come in at 7.3p, up from 6.7p last year.

In July, management said: “When we have successfully managed our way through this transitional period, improved our organisation and how we go to market, we see significant upside opportunities and material value creation. The Board is confident that the Group can deliver sustainable earnings growth and enhanced shareholder value once it has more robust foundations in place.”

The investment case is clearly not risk-free, however for risk-tolerant investors with a long-term investment horizon, I believe there could be an opportunity here.

The post Two under-the-radar growth stocks I’d buy today appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in NCC Group. The Motley Fool UK owns shares of NCC. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tenpin bowling is a bit of an old school leisure activity in a world where entertainment options are dominated by smartphones, games consoles and screens of all sorts. But Hollywood Bowl (LSE: BOWL), the UK’s largest operator of tenpin bowling lanes, has found that investing in upgrading its centres and appealing to young families is a very profitable exercise.

In the half year to March, the group’s revenue rose 7.9% year-on-year (y/y) to £59.3m. It opened one new centre to take its total to 55 and also increased like-for-like (LFL) sales by 1.2%. And looking ahead there’s still considerable room for management to increase sales by pursuing growth drivers in the near future.

The company has a strong pipeline of future sites with three new centres due to open in H2 and a further three sites already lined up and due to begin operating in fiscal year 2018/2019. On top of this, LFL sales should also continue to rise as the company’s refurbishment programme overhauls run-down Bowlplex locations it purchased in 2015 and introduces popular concepts such as Hollywood Diner restaurants and VIP lanes across the estate.

The company is also highly profitable and kicks off plenty of cash. In H1, EBITDA margins rose to 30.8% to £18.2m and net cash flow increased to £7.3m. With net debt at period-end falling to £13.5m and new centres only costing around £2.3m on average, shareholders see increasing amounts of cash thrown their way going forward.

Analysts are already pencilling in a 3.4% dividend yield for the year ahead. This figure should only rise as the company’s margins rise, one-off costs related to its IPO roll off, and refurbishment capex tails off as it nears completion of the estate renovation. Hollywood Bowl’s fortunes should rise and fall generally in line with the broader macroeconomic environment but with good rollout prospects, high income potential and a valuation of just 13 times trailing earnings, it’s still one small cap I’d own for the long term.

Back on the right track

Another stock I’d buy today is software escrow and testing assurance provider NCC Group (LSE: NCC). The company’s share price is still recovering from a couple nasty profit warnings since last winter and I reckon its shares could be a long-term bargain at their current price.  

The main reason is that despite self-inflicted pain over the past few quarters the company is still well-placed to benefit from the broader increase in demand for cyber security services while in the short term raking in cash from its software escrow business.

The new management team plans to profitably benefit from these tailwinds by selling off its software and web testing services and doubling-down on targeting the relatively fragmented and under-served cyber security services market. And while this turnaround is being executed the company is still cash flow positive with low levels of debt, meaning investors’ downside risk is considerably lower than with the likes of Carillion, for example.

With sector tailwinds at its back, a solid turnaround plan to improve sales and margins, and a healthy balance sheet, NCC Group appears to be a great play on cyber security to me.

The post 2 high-growth stocks I’d buy today appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of NCC. The Motley Fool UK has recommended Hollywood Bowl. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Which, if either, should plucky investors back to turn things around? Here’s my view.

Grim numbers

After an awful end to 2016 (when the company disclosed the loss of three major contracts), there was never any expectation that today’s full-year numbers from NCC were going to be anything other than fairly dire. So proved to be the case.

Despite group revenue rising 17% to £245m over the 12 months to the end of May, the company still booked an operating loss of £53.4m in the last financial year. Contrast that with 2016’s operating profit of £11.4m.   

So why are the shares currently up 8%? It all seems to be down to a positive reaction to the conclusions reached from the company’s strategic review.

While reflecting that recent performance had fallen “well short of original expectations,” Executive Chairman Chris Stone stated that NCC still enjoyed “significant organic growth” in its core markets.

In addition to highlighting the company’s intention to improve the way it was organised, Stone was keen to draw attention to the NCC’s sound finances (net debt fell to £43.7m from the £48.8m figure reported at the end of H1) and how sentiment towards the Manchester-based business from markets and customers continued to be positive.  

The market also appeared reassured by the fact that earnings expectations for 2018 hadn’t been altered and the dividend has been maintained.

For long-term investors, I think NCC could be a decent buy, even if its stock trades at a still-rather-expensive 22 times forecast earnings. The demand for cyber security services will only grow over time and the company’s decision to focus on this (and sell its Web Performance and Software Testing businesses) appears sensible. 

Worth a punt?

Embattled Carillion’s share price also climbed higher this morning following the announcement it had managed to bag two new contracts with the government’s Defence Infrastructure Organisation (DIO).

Worth a combined total of £158m over five years, the contracts will involve the company delivering soft facilities management services to 233 military establishments in the North of England, Scotland and Northern Ireland. Positively, the contracts also allow Carillion the opportunity to further increase earnings through catering and retail sales.

With this news coming hot on the heels of yesterday’s announcement that the company has been appointed to deliver part of the HS2 rail line, should investors see recent events (and today’s 12% share price rise) as an indication that it’s time to pile in? Not in my opinion.

Putting things in perspective, the recent uplift in its share price is more likely the result of short sellers closing their positions rather than a reaction to these contract wins.

In addition to the above, at roughly three times its market capitalisation, the huge debt burden hanging over the company simply can’t be ignored.

With the dividend suspended and a rights issue looking increasingly likely, throwing cash at Carillion now appears more akin to gambling than investing and the very opposite of the philosophy espoused by the Fool.

For me, NCC looks the far better buy of the two.

The post Better contrarian buy: Carillion plc vs NCC Group plc appeared first on The Twelfth Magpie.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK owns shares of NCC. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Online security specialist NCC Group (LSE: NCC) is one such company.

But sky-high valuations often leave these companies in severe danger should their route to gargantuan profits growth suffer a puncture. And this has been the case for NCC in recent months. A shock profit warning on Tuesday sent the internet play to four-year troughs.

The stock is now dealing at a 68% discount to October’s record peaks of 307.6p per share. But is now a good time for contrarian investors to pile in?

Much work to do

NCC warned this week that full-year adjusted EBITDA would come in around 20% less than it had guided in December. The business forecast earnings of between £45.5m and £47.5m just a couple of months ago.

It advised that “the rate of sales growth and subsequent delivery in the Assurance Division in the third quarter to date has been lower than had been anticipated in both Security Consulting and Software Testing and Web Performance.” The unit has suffered from weakness across UK, continental Europe and North America, NCC advised.

The company had already warned of “three large unrelated contract cancellations, a large contract deferral and difficulties with some managed services contract renewals” at its Assurance Division in October.

With conditions seemingly becoming ever-more challenging, NCC said that it would be carrying out a comprehensive review of its operating strategy, including “a review of all of the Assurance businesses, how they operate and how they sell.”

And it added that it would look at how its assets can be better deployed and utilised “given that the significant and planned rise in central and divisional operating costs this financial year has not produced the anticipated improvement in sales.” And the board plans to draft in a team of external consultants to help with the work.

Too much trouble?

There is clearly a lot of uncertainty surrounding NCC and, despite this week’s further share price downleg, I reckon investors should be braced for further pain down the line. The company currently plans to update the market on the progress of its review “no later than July,” results from which could send the stock sinking still further.

The City expects the tech play to endure a 16% earnings slide in the year to May 2017, resulting in a P/E ratio of 12.7 times. This is well below the benchmark of 15 times considered attractive value (at least for a conventional standpoint) and represents a considerable discount from levels seen just a few months ago.

But while some investors would point to sunnier earnings projections further down the line — NCC is anticipated to punch growth of 20% and 14% in fiscal 2018 and 2019 — the scale of trouble at the firm could see these estimates getting hefty downgrades.

I reckon there is very little to encourage investors to pile into NCC right now, and particularly at current share prices.

The post Is NCC Group plc now cheap enough to invest in? appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Royston Wild has no position in any shares mentioned. 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.

Is the news as grim as the market reaction suggests or is this a falling knife that could be worth catching?

Writing on the wall

I marked NCC as a stock to avoid after a trading update back in October when it said it had experienced a number of setbacks, including three large contract cancellations, a large contract deferral and difficulties with some other contract renewals.

Management said “growth in profitability will now be more biased towards the second half of the year than initially expected, but remains in line with the board’s expectations”. However, all too often in these situations — where a company has a disappointing first half but says it will make up the lost ground in the second half — a profit warning ensues.

NCC was on a forward P/E of 18 at the time (share price around 220p) and I suggested there was potential for the shares to fall a lot further should we see the toxic combination of a profit warning and the market deciding the company merits a lower earnings rating.

Double whammy

NCC issued a profit warning in December and yesterday’s late afternoon release was more serious still. The board not only downgraded full-year adjusted EBITDA guidance to approximately 20% below the already-lowered £45.5m to £47.5m range, but also said it’s initiating a comprehensive strategic review, which will be supported by externally appointed consultants.

Goodwill not so good

At a current share price of 90p, NCC has a market cap of close to £250m. Adjusted EBITDA last year was £43.7m, while the mid-point guidance for this year is £37.2m (down 15%).

At the last balance sheet date (30 November), NCC had net debt of £48.8m. A net debt to EBITDA ratio of 1.3 times is modest and with the company also having available borrowing facilities of £112.5m, compared with £65.9m utilised, lenders aren’t going to be knocking at the door, which is obviously a good thing.

However, while NCC’s net assets of £278m might look attractive at first sight, given the market cap of £250m, the company’s aggressive acquisition strategy means that just about the entire £278m can be accounted for by goodwill. With the group now performing well below expectations, it looks like there will have to be some hefty goodwill writedowns.

Bottom line

Earnings uncertainty after two profit warnings leaves me disinclined to make a guess at what the forward P/E might end up being. On top of this, doubts about the value of acquisitions, likely goodwill writedowns and a major strategic review in progress (which the board has decided it needs outside help with), mean NCC remains a stock to avoid in my view. That’s at least until the outcome of the review is known, which the company says will be no later than the annual results due in July.

The post Is NCC Group plc a falling knife to catch after dropping 25% today? appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

G A Chester has no position in any shares mentioned. 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.

Market leader

Back in December, the Financial Conduct Authority (FCA) announced its plan to implement new rules to raise standards across the CFD and spreadbetting industry. In addition to requiring customers to have more money in their accounts in order to trade, the FCA also suggested that firms disclose their average client profit/loss, use standardised risk warnings and prohibit bonus promotions.

Clearly, a development such as this was never going to be warmly received by the market. More restrictions increase the possibility of fewer clients and, ultimately, lower profits for those in the industry. That said, a drop of around 40% — also experienced by IG’s peer,CMC Markets — felt like an over-reaction, particularly as the former stated its general support for the FCA’s proposals.

Having recovered slightly since December’s fall, IG’s shares trade on a price-to-earnings (P/E) ratio of 11 for 2017. For a quality operator capable of generating consistently high returns on capital and exceptional operating margins, I think this represents a real bargain for investors, especially as the shares could re-rate sharply if the FCA is willing to listen to alternative ideas from major players in the industry. Indeed, IG has already suggested that a tool such as limited risk trading — which prevent a client from losing more than their initial deposit — could be a better solution than reducing the leverage available to customers. If this idea gains traction, expect the market to re-evaluate the £1.9bn cap market leader’s shares.

While the situation plays out, investors can capture a stonking, sufficiently-covered yield of 6.2% – over six times what you would get from the best instant access cash ISA. 

Exponential growth

Although for completely different reasons, the plunge in NCC’s share price was on par with that experienced by IG. In October, the company informed the market of three major contracts being cancelled and issues surrounding services contract renewals. Investors duly jettisoned the stock from their portfolios, despite the company seeking to reassure holders that profits would still be in line with expectations, albeit “more biased towards the second half of the year than initially expected“. While the near-term outlook looks uncertain, we should hopefully get a clearer picture of things when the company releases its interim results next Thursday. 

Thanks to new European rules forcing companies to take further steps to keep data secure, however, I’m confident that shares in NCC will eventually recover their lost form. Longer term, the exponential growth expected in the cyber-security sector should see more businesses call on its services and investors buying its stock. Let’s not forget that this company was also priced to perfection following year after year of earnings growth. Any disappointment was always likely to be punished by the market.

Even so, I appreciate that shares in the Manchester-based business still trade on a rather high P/E of 20 at the time of writing. That’s understandably a lot more than some investors will be willing to pay. Nevertheless, those with long investing horizons and higher risk appetites may wish to take a position.

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Paul Summers has no position in any shares mentioned. 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.

In this article I’ll take a closer look at NCC. I’ll also consider the investment case for a stock whose shares have been hit by industry news, despite management guidance that “no material impact” is likely.

Sales up by 35%

Today’s profit warning from NCC formed part of its first-half trading update. The news initially seemed good. Group revenues rose by 35% to £125.8m during the first half of the year, apparently putting the group on track to hit full-year forecasts of £245.8m.

However, NCC also updated shareholders on the expected impact of the contract losses reported in October, when the shares fell by 35% in one day. NCC expects full-year adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to be between £45.5m and £47.5m. That represents an increase of up to 5% on last year, but investors had been expecting much larger gains.

A second risk is that the group’s poor performance during the first half means that more than half (54%) of profit is expected to be earned during the second half. Companies that say profits will be weighted to the second half often end up issuing another profit warning later in the year.

I’m not convinced that NCC shares are cheap enough to be a genuine bargain. The group’s profit margins fell last year, and the outlook for this year remains uncertain.

Today’s fall suggests that the market now expects earnings to be below consensus forecasts of 11.9p per share in 2016/17. Even if NCC does hit this forecast, the firm’s shares still trade on a forecast P/E of 16, with a yield of just 2.5%.

I’d like to see evidence that performance has stabilised before committing any cash to this company.

This could be a better buy

Shares of software group Playtech (LSE: PTEC) have fallen by 13% since the end of November. One of the main reasons for this decline is that the group provides software for online spread betting firms. New proposals from the FCA to tighten the regulation of this sector seem likely to reduce profit margins.

Investors are concerned that demand for Playtech’s software could fall. But management says the proposals “are not expected to have a material impact”. If correct, then the shares could be attractively priced at the moment. The stock currently trades on a forecast P/E of 14 for the current year, falling to a P/E of 11.5 in 2017.

Playtech also has income potential, thanks to strong free cash flow. In addition to a forecast ordinary dividend yield of about 3.3%, it has just paid a special dividend of €0.46 per share, and commenced a €50m share buyback programme.

Current forecasts suggest adjusted earnings per share could rise by 23% in 2017. The group’s recent growth has been strong, and may continue. However, investors need to remember that the two main sectors in which Playtech operates — online gambling and financial betting — are at constant risk of regulatory disruption.

As things stand, I’d rate its as a hold.

The post Should you catch this falling knife after another NCC Group plc profit warning? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. 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.