RC Fornax PLC (AIM:RCFX), the defence sector small-cap, is tipped for more than 80% upside with City analysts eyeing attractive fundamentals and ambitious growth targets.
The company floated on AIM in early February, raising £5 million, and offers a compelling narrative.
Founded in 2020 by a pair of ex-RAF engineers the company focuses on the outsourced contract defence market, aided by management’s insider’s view of ‘how the MOD works’ and because they understand the operating needs of their military customers.
David Buxton, analyst at City stockbroker Cavendish, sees RC Fornax as a disruptor in its marketplace.
“RCF has demonstrated a quicker and efficient way to support resource demands with a full suite of services from Time & Materials (T&M), through fully managed and embedded teams, and all the way to full outsourcing capabilities,” Buxton said in a note.
“It is able to augment the capabilities of large defence organisations in ways traditional recruitment solutions and consultancies cannot.”
Looking ahead, the analyst reckons the firm can grow not just in scale, but also in efficiency – pointing to the opportunity to ‘internationalise’ and expand geographically, and estimated that gross margins can potentially rise to 39% from 29% as the firm lands more deals.
“With no inventory needs, favourable working capital terms and low capex needs, we expect it to become strongly cash generative,” Buxton added.
Cavendish has a 61p price target for RC Fornax, versus a prevailing market price of around 34p.
In interim results released on Monday, the company reported a 30% rise in revenue, up to £3.8 million, enabling £1.1 million of gross profit.