Market outlook
Market outlook
It’s easy to see why NCC Group’s cyber security consulting and software resilience solutions should find plenty of opportunities to mitigate the risks of global businesses. ”
Damindu Jayaweera Head of Technology Research at Peel Hunt
Recent years have brought about disruption on a scale that felt greater than those of the 1970s. For example, at the start of the Covid-19 pandemic, Microsoft CEO Satya Nadella talked about how “we have seen two years’ worth of digital transformation in two months.” While the initial boost will create a difficult comparator for delivering growth this year, the pandemic-induced “new normal” for technology investment, including that related to cyber security, is unlikely to go back to pre-pandemic levels. For example, quarterly cloud services spend grew by c.$14bn in the two years to 1Q20. It then went on to grow by $25bn in the two subsequent years to 1Q22. With significant digital gaps still weighing on user, colleague and citizen experiences across public and private sectors, we think the runway for technology, including cyber security, investment remains significant. As an example, cyber security modus operandi in the private sector, we believe, lags that of the public sector. Techniques and technologies that can overcome this gap, for example machine learning powered attack simulations, remain firmly in the “peak of inflated expectations” phase of the “hype-curve”. Over the coming periods, such techniques and technologies will move to the “plateau of productivity”, providing growth tailwinds to the companies that are involved in the domain. Cyber security spend will move towards becoming a larger, more recurring, perhaps even mandated, form of spend. While long-term opportunities are unperturbed, the fall-out from near-term disruptors like inflation presents more nuanced opportunities. This year, monetary policy pivoted from thinking of inflation as “transitory” to something that needs containment. This was all too late for containing some asset bubbles like those in the cryptocurrency world and unrest seen in places like Sri Lanka. Arguably this is also too late to contain some of the rampant wage inflation we are seeing in the technology sector.
History, as they say, rhymes. The 1970s, for example, are remembered for disruptive events. Yet, the rise of “progressivism” in the West that shifted the status quo, rampant inflation that triggered a deep recession and events that redrew the geopolitical landscape did not get in the way of the economic and technological progress of that decade. In fact, innovations across video games (e.g. Atari Pong), communication (e.g. ARPANET email and Motorola cell phone), storage (e.g. IBM floppy disk), content distribution (e.g. Philips VCR and Sony Walkman) and computing (e.g. Apple computer) during the 1970s are still powering the structural growth trajectories that we see today. If we assume the S&P 500 Index is a reflection of economic progress, the chart below should remind us why great companies like NCC Group should remain focused on their growth agenda, whatever the near-term volatility is.
Chart 1: Rise of the S&P 500 Index over the long term through geopolitical shocks Source: Peel Hunt
S&P 500 Index levels
Russia invades Crimea
6,400
London bombings
Arab Spring
3,200
Second Gulf War
1,600
First Gulf War
Brexit
800
Iran-Contra affair
9/11
US–China trade war
400
Orange Revolution – Ukraine
Iran hostage crisis
200
Iraq invades Kuwait
100
50
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
14
NCC Group plc — Annual report and accounts for the year ended 31 May 2022
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