Shearwater Group plc (LON:SWG) has delivered a trading update that suggests the cybersecurity specialist is building steady momentum, with Cavendish saying performance for the 12 months to June came in ahead of expectations.
The latest research note points to a strong second half in the Services division, which helped push annualised revenue growth to £42m, up 33% year on year and 18% ahead of forecasts. Adjusted EBITDA was £2.5m, slightly ahead of expectations, while net cash rose 11% to £5.6m. The tone of the note is clearly constructive, with the analyst highlighting positive commercial momentum, a healthy demand backdrop for specialist cybersecurity expertise and a year-end move to June that better reflects customer budget cycles.
One of the clearest positives is that the company is showing growth even as the revenue mix shifts towards lower-margin Services work. That weighed on gross margin, which is expected to come in at 20% for FY26, but the stronger top-line performance and improved operating control still support a forecast increase in adjusted EBITDA and earnings. Cavendish has upgraded FY26 revenue by 18% and nudged EBITDA forecast higher by 4%.
The note also sees scope for further value creation. With cash continuing to build, the board has announced its intention to begin a reallocation of capital reserves, which could open the door to share buybacks and/or dividends if it chooses to act. For investors, that matters because Shearwater remains debt free and is forecast to close FY27 with net cash of £7.8m.
Highlights from the FY26 trading update
- Revenue expected to rise to £42m, around 33% annualised growth and 18% ahead of expectations.
- Adjusted EBITDA forecast at £2.5m, equivalent to 39% annualised growth and slightly ahead of forecasts.
- Net cash expected to remain strong at £5.6m, with no debt on the balance sheet.
- The UK telco contract announced on 1 July is expected to contribute £12.5m of revenue.
- The board has signalled the potential for future buybacks and/or dividends through capital reserve reallocation.
The company’s valuation also remains a key part of the investment case. At 45.5p, the shares are described as trading at a material discount to peers on FY27 estimates, with a price target of 90p implying meaningful upside. The analyst notes that the stock currently trades on just 0.1x FY27 sales and 7.8x P/E, while the forecast for adjusted diluted EPS growth is 19% in FY27.
As the note puts it, “Against a positive start to the new financial year and a strong pipeline of opportunities, we reiterate FY27 forecasts as a basis from which to outperform as visibility improves with pipeline conversion.”
Key takeaways
- Trading momentum remains strong, driven by Services and supported by a sizeable UK telco contract.
- Cash generation is improving, leaving room for possible shareholder returns.
- The shares still screen at a low valuation versus the growth outlook and forecast earnings progression.
For investors watching the UK cybersecurity space, Shearwater’s latest update suggests the business is continuing to expand while preserving balance sheet strength, with the next stage of performance likely to depend on how quickly the pipeline converts into new work. The combination of upgraded near-term forecasts, a stronger cash position and a management focus on capital allocation gives the story an increasingly positive shape.
