RC Fornax shares sank on Tuesday after the defensive services group cautioned the UK government’s Strategic Defence Review would curtail demand in the short term, leading the company to warn of soft revenues.
The RC Fornax share price was down around 40% at the time of writing.
In April, the UK Investor Magazine warned investors to avoid RC Fornax due to a high valuation and weak revenue growth. We didn’t, however, expect the highly concerning update from RC Fornax this morning.
Today’s drop brings shares back to a more sensible level on a valuation basis, but there are still major concerns about the outlook for the business.
RC Fornax’s disappointing sales guidance reflects the unintended consequences of the government’s Strategic Defence Review, which has paradoxically weakened short-term demand despite promising long-term opportunities for the AIM-listed defence consultancy. Such reviews should be seen as an opportunity for growth, and RC’s warning suggests poor decision-making and a lack of forward thinking.
The company now expects FY25 revenue of just £4.0 million, significantly below market expectations, as existing and prospective customers have delayed or reduced spending whilst assessing their requirements following the review’s 62 recommendations.
Management had mistakenly believed their diversified tier-1 customer base would prove resilient ahead of the SDR’s publication in June.
Leadership Shake-up Exposes Sales Weaknesses
The revenue shortfall has been compounded by internal failings, with COO and Co-Founder Daniel Clark departing after the newly expanded sales team failed to convert a robust pipeline into contracts. Several deals anticipated for FY25 have now slipped to FY26, highlighting the challenges of scaling commercial operations following the company’s recent IPO.
RC Fornax has responded with significant organisational restructuring, including hiring an experienced sales director to align commercial efforts with engineering capabilities better.
The company maintains it holds sufficient cash reserves of £2.6 million to meet working capital requirements. However, there will be a concern that the minimal cash levels and the prospect of low cash inflows will leave them unable to invest in opportunities. This is not a place a company wants to be so soon after listing.
Whilst increased customer engagement since the SDR’s publication offers hope—including renewed discussions with major contractors and a potentially significant partnership opportunity—the immediate outlook remains challenging as the defence sector navigates budget uncertainty created by the Government’s strategic overhaul.
RC Fornax shares could go lower.