Redcentric’s half-year: margins up, MSP in focus, and a data centre exit on the way
Redcentric has reported a steady first half while reshaping the business. The headline move is the agreed sale of its Data Centre (DC) business for an enterprise valuation of up to £127 million, payable in cash, with completion targeted by the end of March 2026. That will leave the Group squarely focused on Managed Services (MSP) – a lower capex, higher cash conversion model.
Against that backdrop, the MSP unit delivered improved margins despite a small dip in revenue, and the Board flagged the potential to return capital to shareholders, most likely via a Tender Offer, once the DC sale completes.
H1 FY26 MSP performance: higher quality revenue, better margins
Redcentric’s continuing operations (the MSP business) leaned into profitability over top-line growth. Recurring revenue – income that repeats under contract or predictable usage – held firm as a share of sales at over 90%, which is exactly what you want from a services platform.
| Key metric (MSP) | H1 FY26 | H1 FY25 | Change |
|---|---|---|---|
| Total revenue | £66.8m | £69.2m | -3.6% |
| Recurring revenue | £60.4m | £60.9m | -0.9% |
| Recurring revenue % | 90.4% | 88.0% | +2.5% |
| Gross profit | £41.1m | £40.9m | +0.5% |
| Gross margin | 61.6% | 59.1% | +2.5% |
| Adjusted EBITDA | £9.1m | £8.9m | +2.7% |
| Adjusted EBITDA margin | 13.7% | 12.8% | +0.8% |
| Reported profit before tax | £1.9m | £1.6m | +18.7% |
| Adjusted basic EPS | 1.86p | 1.70p | +9.3% |
| Reported basic EPS | 1.19p | 1.13p | +4.8% |
| Group net debt | (£68.6m) | (£66.6m) | +2.9% |
| Group adjusted net debt | (£41.8m) | (£39.9m) | +4.6% |
Adjusted EBITDA is a common profitability metric that removes non-cash and one-off items to show underlying trading. The improvement in MSP margin to 13.7% reflects a deliberate shift towards higher quality, higher margin contracts and cost discipline.
How the whole Group looked in the half
On a total operations basis (MSP plus the DC business, which is classified as discontinued), revenue was £83.6m (H1 FY25: £86.8m). Recurring revenue was £77.0m (H1 FY25: £78.3m) with recurring as a percentage of total revenue rising to 92.1%. Adjusted EBITDA was £17.4m (H1 FY25: £18.2m) and the gross margin stepped up to 60.5% (from 58.3%).
Why the data centre sale is a big deal for shareholders
The Board calls the DC disposal “transformational”, and that’s fair. It simplifies the group, reduces capital intensity, and should de-lever the balance sheet. Key points:
- Agreed sale of the DC business to Stellanor Datacenters Group Limited for an enterprise valuation of up to £127 million, payable in cash.
- Completion targeted by the end of March 2026, subject to regulatory and separation conditions; some conditions have already been satisfied.
- Proceeds are expected to materially reduce debt and fund a significant return of capital to shareholders, most likely via a Tender Offer (a company invites shareholders to tender shares back at a set price).
- RCF to be reduced from £60m to £30m after completion, with drawings cut to no more than £19m.
- Redcentric will provide transitional services for 12 months post-completion.
In plain terms: a cleaner MSP business, lower leverage, and the potential for cash back to investors.
Cash, debt and funding: a stronger profile post-disposal
At 30 September 2025, Group net debt was £68.6m and adjusted net debt was £41.8m. The Group had £70.0m of committed facilities: a £60.0m Revolving Credit Facility with £41.0m utilised, and a £10.0m Asset Financing Facility with £4.2m utilised. The borrowing cost on the RCF is 205 bps over SONIA at current leverage.
Cash conversion for the Group in the half was 59.0%. Management expects higher cash conversion once the DC sale completes and the business is unburdened by DC capex.
MSP growth plan: cybersecurity, public sector cloud and efficiency
Management has refreshed the MSP strategy with four clear strands:
- Enhanced cybersecurity: invest in certifications, SOC capability and compliance frameworks to grow higher-margin recurring security services.
- Public sector cloud modernisation: double down on existing NHS and government relationships, with managed services across public cloud and sovereign cloud. Sovereign cloud keeps data within UK legal boundaries to meet privacy and compliance needs.
- Partner ecosystems: expand selective partnerships in regulated verticals to accelerate go-to-market and cross-sell to the enlarged base.
- Operational efficiency: optimise facilities and procurement, invest in automation, and upgrade the Microsoft 365 ERP (Finance & Operations) to create a scalable platform. Delivery automation in Connectivity is expected to drive savings from H2 FY27.
There is also practical housekeeping underway: vacating an under-utilised York site, consolidating racks after winding down a hardware recovery service, and tightening licensing across VMware and Microsoft estates to lower costs from H2 FY26 with a bigger impact in FY27.
Outlook: a transition year now, growth targeted from FY27
- The Board anticipates MSP revenues to be broadly flat in FY26 as management completes the separation and sale process.
- Focus for the current year is margin expansion and cost control; a modest reduction in earnings is expected, followed by “more ambitious” revenue and earnings growth in FY27 and beyond.
- After the DC sale, the Board expects improved free cash flow and will consider reintroducing a progressive dividend policy and/or starting a share repurchase plan.
Jargon buster
- Recurring revenue: income that repeats under contracts or habitual usage, supporting visibility.
- Adjusted EBITDA: earnings before interest, tax, depreciation and amortisation, adjusted for exceptional items and share-based payments. A proxy for underlying cash profit.
- Tender Offer: a mechanism to return capital where the company invites shareholders to sell a portion of their shares back for cash.
- Sovereign cloud: cloud infrastructure that ensures data residency and compliance within a nation’s legal framework.
My take: quality over quantity, with a catalyst on the horizon
There is plenty to like here. The MSP business improved gross margin to 61.6% and lifted adjusted EBITDA despite revenue easing. Recurring revenue at 90.4% underpins visibility and should support cash generation once the DC sale resets the capital structure. The strategy is sensible: lean into security, public sector modernisation and automation, where Redcentric already has credibility.
But it is a transition year. Completion risk on the DC deal remains until conditions are ticked off, and earnings are guided to be modestly lower in FY26. Net debt is still meaningful until proceeds arrive, and some of the bigger efficiency gains (ERP and delivery automation) kick in from FY27, not tomorrow.
Net-net, if the DC sale completes as planned, Redcentric becomes a cleaner, less capital-intensive MSP with scope to reduce leverage and return cash. Execution on the refreshed go-to-market and cost programme is the next proving point. For investors, the potential Tender Offer and a possible reinstated dividend add tangible reasons to keep this on the watchlist through FY26.
