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Penny stock Made Tech (LSE:MTEC) was on the march today (18 August). As I write, it’s up 14% to 43p!
This came after the company announced that it had secured its largest ever contract. Let’s take a closer look to see if this penny share might just be getting started at that price.
On a roll
For those unfamiliar, AIM-listed Made Tech provides IT and consulting services to the UK public sector. It has worked with the NHS, Department for Education, Ministry of Justice, Met Office, and various local councils.
Growth has been very strong in recent years, as government organisations have sought to transform themselves digitally. Revenue has grown organically from £5.5m in FY20 to an expected £58.2m in FY26 (which ended in May).
Today, Made Tech announced it has been chosen as part of a consortium for a four-year UK government contract. Valued at £40m, the deal is the largest in the firm’s history. For context, Made Tech’s market cap is only about £64m.
Revenue is expected to commence this year (FY27), with a bigger contribution in FY28. As such, FY27 revenue is anticipated to be £63m–£66m, above previous market expectations for £60.3m. Adjusted EBITDA is expected to fall between £6.3m and £6.6m (previously £6m).
This latest win brings the firm’s contracted backlog to approximately £115m. CEO Rory MacDonald said the award “endorses our position at the centre of a number of critical programmes across government”.
Where next?
Can this penny stock keep marching higher? I think so, considering that expectations for FY27 have been lifted and management is expressing strong confidence in the firm’s medium-term growth trajectory.
Plus, even after hitting a 52-week high today, it’s about 65% below its 2021 IPO price.
There’s also the fact that as it rises, Made Tech will naturally come onto the radar of more small-cap investors. And this is a higher-quality penny stock than most because the business has been profitable for a couple of years now.
So this isn’t some perpetual loss-making enterprise. The balance sheet is very strong, with no debt and net cash of £11.9m back in February.
Furthermore, the forward price-to-earnings ratio was only 13.7 before today’s jump. That’s not expensive for a fast-growing firm winning record contracts. It could re-rate higher.
Finally, as operational leverage continues to improve, I expect it to become more profitable. And that should boost the share price over time.
What are the risks?
Of course, this isn’t a risk-free stock. The firm is still a relatively small fish in a competitive market, with others all vying for a slice of the same government digital transformation programmes. And volatility is a given for all penny stocks.
Another potential risk I see is that Made Tech is actively exploring M&A opportunities. While acquisitions could expand the market opportunity, there’s always a chance that they don’t work out, depleting resources and damaging shareholder value.
Is the risk worth it?
Weighing things up, I think this stock is worth digging into. As the UK public sector faces cost pressures, the adoption of modern technology like AI to improve efficiency through the likes of Made Tech is becoming more critical.
Looking ahead, I reckon the penny stock is heading higher than 43p.
Should you invest £5,000 in Made Tech Group Plc right now?
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Ben McPoland has no position in any of the companies mentioned.
This story originally appeared on Motley Fool
