Shearwater Group (LON:SWG) has delivered a FY26 trading update that, according to the latest research note from Cavendish, came in ahead of expectations and underlines the company’s improving momentum. The cybersecurity and digital resilience specialist reported strong second-half delivery in its Services division, helping annualised revenue rise 33% to £42m, while adjusted EBITDA also moved ahead of forecasts at £2.5m. Net cash remained healthy at £5.6m, reinforcing the balance sheet story.
The note highlights that growth was supported by a higher contribution from Services, including a £12.5m revenue contribution from the £25m UK telco contract announced earlier this month. While that mix shift reduced gross margin to 20%, it did not stop profitability progressing, with adjusted EBITDA still edging above expectations. Cavendish also points to a positive demand backdrop for specialist cybersecurity expertise and notes that the change of year end to June should help align reporting more closely with customer budget cycles.
In a succinct assessment of the outlook, the analyst wrote: “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.”
The research house has upgraded FY26 revenue by 18% to £42m and nudged adjusted EBITDA up 5% to £2.5m, while leaving net cash unchanged. FY27 forecasts are reiterated for now, with revenue expected to moderate to £38m as the mix normalises, but with adjusted EBITDA still forecast to edge up to £2.6m and adjusted diluted EPS to rise to 5.9p. The broader picture remains one of continued double-digit annualised growth, strong cash generation and improving profitability.
FY26 trading update highlights
- Revenue rose 33% annualised to £42m, ahead of expectations.
- Adjusted EBITDA increased to £2.5m, slightly ahead of forecast.
- Net cash held steady at £5.6m, with no debt on the balance sheet.
- The board intends to initiate a reallocation of capital reserves, creating the prospect of buybacks and/or dividends.
- FY27 forecasts were reiterated, with visibility expected to improve as pipeline conversion progresses.
There are three key takeaways from the note. First, Shearwater’s growth remains robust, with annualised revenue and EBITDA gains still running at double-digit rates. Second, the company is beginning to translate commercial momentum into a stronger cash-backed balance sheet, which may open the door to shareholder returns. Third, valuation remains undemanding in the broker’s view: at 45.5p, the shares trade on just 0.1x FY27E sales and 7.8x P/E, compared with a 90p target price that implies meaningful upside.
We see the combination of contract-backed growth, resilient cash generation and a strengthening balance sheet as encouraging for investors looking at the cybersecurity space. Cavendish’s view is that Shearwater is well placed to benefit as pipeline opportunities convert and the benefits of operating leverage come through more clearly in the numbers.
For now, the message from the update is straightforward. Shearwater has started the new financial year well, trading is ahead of expectations, and the medium-term story continues to build on a firmer financial footing.
