Shearwater Group beats FY26 expectations as cybersecurity services drive stronger growth

What has Shearwater announced?

Shearwater Group has delivered a stronger-than-expected finish to its 2026 financial year, with second-half trading pushing both revenue and adjusted EBITDA ahead of market expectations.

The AIM-listed cybersecurity group now expects revenue of approximately £42 million for the year ended 30 June 2026. That compares with the £35.5 million figure identified by the company as the current market expectation.

Adjusted EBITDA is expected to reach £2.5 million, against a market expectation of £2.4 million. EBITDA means earnings before interest, tax, depreciation and amortisation, while the adjusted figure excludes certain items that management considers non-underlying.

The revenue performance is the standout element. The expected result is approximately £6.5 million above the stated market forecast, although investors should remember that this is still a trading update rather than a set of audited full-year accounts.

Shearwater Group's key FY26 figures

Metric	FY26 expected	FY25 reported	Stated FY26 market expectation
Revenue	Approximately £42 million	£39.5 million over 15 months	£35.5 million
Adjusted EBITDA	£2.5 million	£2.2 million	£2.4 million
Net cash	£5.6 million	£5.1 million	Not disclosed
Annualised revenue growth	Approximately 33%	Not applicable	Not disclosed
Annualised adjusted EBITDA growth	41%	Not applicable	Not disclosed

There is an important comparison issue in these numbers. FY25 covered a 15-month period, whereas FY26 is a 12-month financial year. Comparing the two reported revenue figures directly would therefore understate the underlying growth rate.

Shearwater says revenue increased by approximately 33% on an annualised year-on-year basis, while adjusted EBITDA rose by 41%. This follows annualised growth of 29% in revenue and 91% in adjusted EBITDA during FY25.

What drove the stronger performance?

Management attributes the result to continued expansion in the Services segment and momentum from several previously announced contract wins.

That matters because contract announcements only create economic value when they convert into recognised revenue and profit. The update indicates that recent wins are now feeding through into Shearwater's financial performance, rather than remaining future opportunities on paper.

The stronger second half is also encouraging. It suggests trading momentum improved as the year progressed and was strong enough to lift the full-year result above expectations.

However, Shearwater has not provided a detailed revenue split, contract contribution analysis or segment-level profitability figures in this announcement. Investors will need to wait for the full-year results for a clearer view of the growth mix and whether all parts of the group contributed equally.

Revenue is further ahead than profit

The expected revenue figure is substantially above the company's stated market expectation, while adjusted EBITDA is only modestly ahead.

Based on the announced figures, FY26's implied adjusted EBITDA margin is around 6.0%. That calculation simply divides expected adjusted EBITDA of £2.5 million by expected revenue of approximately £42 million.

This does not make the update negative. Adjusted EBITDA is still expected to increase by 41% on an annualised basis and beat the market forecast. But it does suggest that the revenue outperformance has not flowed through to adjusted EBITDA at the same rate.

Possible reasons are not disclosed, so investors should avoid jumping to conclusions. The eventual results will need to explain the cost base, contract mix and level of operational gearing. Operational gearing describes how quickly profit can grow when revenue rises faster than largely fixed operating costs.

For now, the clean reading is that Shearwater is growing strongly, but further margin progress remains an important part of the investment case.

Net cash provides useful flexibility

Shearwater ended FY26 with net cash of £5.6 million, up from £5.1 million at the end of FY25. Net cash means the group's cash holdings exceed its borrowings.

The increase is relatively modest, but finishing the year in a net cash position is helpful. It gives the board more flexibility to invest in growth and consider returns to shareholders without the immediate constraint of net debt.

The directors expect to call a General Meeting seeking approval for a proposed reallocation of capital between reserves on the balance sheet. If approved, this would give Shearwater the legal flexibility to buy back shares, pay a dividend, or potentially do both.

Crucially, neither a buyback nor a dividend has been announced. The proposal would only create the option to return capital if the directors later decide that doing so is appropriate.

Investors should therefore treat this as a potentially positive signal on balance-sheet confidence rather than a firm commitment to a payout.

Why the update matters for investors

There are several clear positives in the announcement:

• Revenue and adjusted EBITDA are expected to beat market forecasts.
• Annualised revenue growth is approximately 33%.
• Annualised adjusted EBITDA growth is 41%.
• Previously announced contract wins are contributing to trading momentum.
• Net cash has increased to £5.6 million.
• The board is seeking flexibility for possible dividends or share buybacks.
• Management says the opportunity pipeline remains strong entering FY27.

There are also points that deserve scrutiny:

• The announcement provides limited detail on margins and cost development.
• Revenue is further ahead of expectations than adjusted EBITDA.
• FY25's 15-month reporting period makes simple headline comparisons less useful.
• The size, timing and probability of opportunities in the FY27 pipeline are not disclosed.
• No dividend or share buyback has actually been approved or announced.
• The figures remain expected results pending the publication of the full accounts.

What comes next for Shearwater?

The group enters FY27 with what the board describes as positive momentum, supported by continued demand for cybersecurity services and a strong pipeline of opportunities.

Shearwater serves public and private-sector organisations through cybersecurity, managed security and professional advisory services. Management believes increasingly sophisticated and frequent cyber threats continue to support demand for the group's offering.

The next important test will be whether Shearwater can turn its pipeline into further profitable contract wins while improving the conversion of revenue into earnings and cash.

Investors should also watch for the General Meeting notice and the terms of the proposed reserve reallocation. Approval would remove a technical barrier to potential shareholder returns, but the board's eventual capital-allocation decision will matter more than the approval itself.

Overall, this is a positive trading update. Shearwater has exceeded expectations, maintained a net cash balance and carried stronger momentum into FY27. The full-year results will need to provide the detail behind that growth, particularly around margins, cash generation and the quality of the contract pipeline.