Croma Security Solutions Share Discussion Threads

[rivaldo] 14/8/2024 07:22

Russell Long has been buying again - he's increased to 7.4% (from 6.4%) and now owns 1.022m shares, so has bought another 150,000:



He's a member of Mythril LLP which has almost £9m of net assets, so reasonably substantial:

[rivaldo] 13/8/2024 15:13

A trade of 150,000 shares at 63.5p just reported and the price has moved up - hopefully the clearance of an overhang.

[rivaldo] 08/8/2024 11:42

Hi MTIOC. Yes, if you look at Zeus's latest note on Research Tree at the bottom of page 1 then there's a direct link to it on Zeus's research pages which you can click on - the 16th May note isn't on Research Tree for some reason.

[mtioc] 08/8/2024 10:24

Thanks really interesting. Where is note? I cannot see on Z or Research Tree sites?

[rivaldo] 08/8/2024 09:57

Zeus's 27 page note from 16th May is well worth a read if you can access it. The section on the synergies from acquisitions is particularly interesting and reflects on the potential to grow quickly from the historic £1.06m EBITDA:

"Roll-up at low multiples and clear synergies driving attractive ROIs

Of the roughly 6,500 locksmith stores operating in the UK (Source: MLA), the vast majority are owner-operated or part of small enterprises of between one and three stores. With a large number of these stores facing succession issues, there are numerous stores available to acquire at highly attractive valuations – CSSG targets multiples ranging from 1-5x to 3x EV/EBITDA – with clear opportunities for synergies on day one to improve margins immediately post-acquisition.

Having made a number of acquisitions in recent years (see Table 5 above), CSSG has built up a clear picture of the opportunities, which extend to i) cost savings and ii) sales growth. On the first score, given some inevitable cost duplications, together with a low level of professionalisation in the market as whole (in terms of financial and business management software adoption), the integration of CSSG’s proprietary software systems post-acquisition provides an immediate time/cost saving for small operations.

Bulk purchasing rebates/discounts of more than 5% are typical once stores are brought into the group. On top of this, we note significant opportunities for cross-selling to large customers, which could be serviced by multiple stores in the CSSG group. On this basis, we assume a post-acquisition improvement in EBITDA (pre-central costs) margins from ca.8% to 14% once operating within the group.

Indicative scenarios

Below, we present indicative scenarios to demonstrate the potential impact of the
proposed roll-up strategy. With a base case of five acquisitions per year of typical stores with £350k-£500k turnover, we project an ROI in excess of the company’s target 15%, with scope for this to improve with cross-selling, and an EBITDA run rate of £2.4m by FY27E. Indicatively, if the roll-up is slower than anticipated, we expect EBITDA to reach £2.0m by FY27E, if three sites are acquired per year. We project EBITDA of ca.£2.6m by FY26E, if the group could accelerate acquisitions to 10 a year"

And the section on valuation, with a 92p current core valuation and an indicative valuation post-acquisitions of 119p:

"Valuation

The current market valuation of CSSG seems, to us, anomalous, when the accumulating
cash deriving from the sale of Vigilant is taken into account. With the company’s market capitalisation currently standing at £9.6m (based on 13.7m shares in issue, Treasury Shares excluded, and a 71p share price), this is well ahead of the £2.1m actual net cash balance at end-FY23; and, indeed, the net cash forecast for FY26 equates to as much as 65% of the current market cap, assuming all payments for Vigilant are received. With this context taken into consideration, we feel on balance that EV/EBITDA is a better guide to value for CSSG at this point than the P/E ratio, while also noting the ex-cash P/E ratio of below 5x.

Valuation based on organic growth prospects combined with cash

Following this through, we premise our basic valuation for CSSG on our core EBITDA
forecast, which is entirely driven by organic growth in the group’s existing businesses. Our forecast for the balance sheet includes the proceeds of the sale of Vigilant, with cash consideration expected to be received over the next approximately three years, bringing net cash at y/e F026E to £6.3m, prospectively.

With no directly comparable companies operating in the locksmith and security centre market, we base our valuation on a broad group of operators in the wider security markets (listed in Table 9, below) together with a basket of stocks representing the overall Support Services sector, discounted to allow for size disparities, given the small size of CSSG. Based on a CY25E EV/EBITDA multiple of 5.8x (6.4x peer group average discounted at 10%), we arrive at a current core valuation of 92p (24% upside); noting that, in practice, variables around the reinvestment of the Vigilant proceeds will be a dominant element in the valuation in the future (see p. 15 below).

On a final point, we note (a) the capacity for CSSG to operate with minimal net cash, and (b) its ability to borrow against freehold properties (£1.6m, as at June 2023, currently estimated to be ca.£2.0m)."

[rivaldo] 07/8/2024 08:34

In the current environment, with business premises and shops in cities all over the UK under threat from small groups of flag-waving extremists, I'd have thought CSSG's products and retailers would be doing rather well to say the least.

Which would make CSSG even better value than it already is.

[mtioc] 29/7/2024 18:06

Has anyone interacted with the management team and Roberto in particular? I would welcome views.

I bought an initial "starter" stake a month or so ago, finished my research and asked the company a few generic questions that are not covered in the last 10 years' annual reports, the listing docs on Croma acquisition (2012) or recent investor relations materials. The response has been underwhelming. This could be a "red flag". The management teams of my better investments have been responsive to informed private investors.

A potential downside is being trapped in a micro listed lifestyle business (RF owns 27%). Value will be created by an aggressive execution of their sensible growth plan, but I worry if the team are too busy to answer a few questions when the business is this size, will they cope if it is twice as big?

Very conscious that it could be an isolated bit of bad timing (e.g. middle of the holidays), but would be interested in views.

[rivaldo] 22/7/2024 11:03

Zeus Capital have summarised today as follows:

"Strong cash position for roll-up

This morning’s update from CSSG highlights positive trading in FY24E (year to
June) together with a healthy cash position following the payment earlier this
month of a £1.76m tranche in respect of the Vigilant disposal. CSSG has leading
market positions and is increasingly a national player in the fragmented UK
locksmiths market / security services / products. Having disposed of its former
low-margin manned guarding business for a good price, the company has a real
opportunity in our view to mop up the disaggregated UK market for its services,
which in turn will enhance earnings and the valuation as increased efficiencies flow through. With now 16 centres, CSSG has already built a strong platform
underpinned by efficient proprietary software. Fair value ignoring plans to translate cash into business (acquisition) opportunities is assessed at 92p (30% upside), but these plans do offer significant further upside beyond this in our view."

"Well-positioned and a healthy market: With sixteen centres and effective technology, CSSG can capitalise on a security market which shows inherent growth as crime has continued to rise and historic cuts to police budgets remain a drag on crime resolutions.

 Well-placed to fulfil its core strategy: Sitting on £4m of net cash and with further payments on the way as highlighted above, we view CSSG as very well placed to exploit the consolidation opportunity inherent in the key market in which it operates, security centres for electronic security and locksmiths. It has acquired no fewer than seven sites since November 2022, and sees further M&A-based potential.

 Valuation positives: With further Vigilant receipts expected, forecast net cash is rising as a proportion of market cap (FY2025E forecast net cash of £6.3m will represent around two thirds of current market cap by the time all the Vigilant receipts are in), our forecasts ignore the company’s earnings enhancing plans, although we do in practice expect to see further deals.

Fair value, ignoring these plans, is assessed at 92p (30% upside), but they do offer significant further upside beyond this in our view. See our note of May 16th for detailed commentary on the roll-out potential / potential synergies and an indicative valuation stretching to 119p."

[arthur_lame_stocks] 22/7/2024 10:16

I used to be a shareholder here and I've just given them another quick look.

I reckon they're cheapish but not stunningly so, balance sheet is sound, decent prospects for further growth, yield ok but not great.

I'll give them some thought.

[rivaldo] 22/7/2024 09:38

Agreed EC - in theory CSSG could have not far off the entire current m/cap in cash by the time the Vigilant payments have been fully received.

Particularly as, quite rightly, Zeus's forecasts don't include anything for the recycling of the cash pile into more profitable acquisitions with the resulting increases in profitability and cash flows from synergies, new product introductions etc.

A quick favour - would you mind updating/editing your thread header post as (1) CSSG sold Vigilant and have a new strategy and (2) the header is rather overlong and could be nicely shortened with the deleting of all your old updates which readers currently have to scroll down?

[effortless cool] 22/7/2024 08:38

Zeus's cash projections look low to me, rivaldo. They have £6.3m by YE 2026 whereas, as you have pointed out, they get to £7.5m just on the basis adding the future Vigilant payments to current cash. The existing business should generate additional cash, as well.

[rivaldo] 22/7/2024 08:28

Good to see a buy just now at 76p, i.e above the published 75p offer price.

That 16th May coverage initiation sneaked past me too EC!

Zeus's update today confirms 4.4p historic EPS to 30th June, and they have 5p EPS pencilled in for this year and a closing £5.1m cash pile.

Using today's £4m cash pile, that puts CSSG on a cash-adjusted P/E of only 8.7.

Zeus have a 92p price target, but they also state that CSSG "offer significant further upside beyond this in our view" to an indicative valuation stretching to 119p given the potential of the roll-out and synergies.

[effortless cool] 22/7/2024 07:39

Agreed, rivaldo. I also discovered this morning that broker forecasts had been sneaked out without me noticing.

There was a big initial report from WHI on 16 May and an update today from Zeus (who took over WHI in the meantime). Today's report includes a link back to the original WHI one.

[rivaldo] 22/7/2024 07:28

An encouraging year end update today - trading is nicely in line, and the cash pile is up to £4m against the £9.9m m/cap.

With a further almost £3.5m to come over the next 2 years! Which would represent a total £7.5m cash pile with no growth at all.

And there's a "good pipeline" of acquisition opportunities to expand.

[rivaldo] 08/7/2024 07:20

Excellent news - £1.76m cash received means CSSG now have £3m+ of net cash against the £9.8m m/cap, even after January's acquisition, plus a highly profitable core business.

Extremely undervalued imho. Time for a re-rating.

[rivaldo] 22/5/2024 09:22

Nice 30,000 share buy today - unusual so perhaps worth noting.

EDIT - and a 25,973 share buy at the full 77p offer too

[rivaldo] 01/5/2024 08:27

Good to see the share price rising on a single buy of just 1k shares! Which suggests stock is scarce.

[rivaldo] 25/4/2024 15:15

Cheers goliard, excellent news (bit belated I know, but it's such a quiet thread I don't check in too often!).

[effortless cool] 15/4/2024 15:44

Good to hear. Thanks, goliard.

[goliard] 15/4/2024 14:43

Just to say that I have received confirmation from CSSG that that the first payment of over £500k was received on 28 March.

[goliard] 04/4/2024 20:58

You may note that I did not use the term RNS and did not do so on purpose. They could easily arrange a NRNS that simply stated that payment was received and that they did not intend to comment on future payments unless they were missed. I believe this is extremely important to provide confidence.

[effortless cool] 04/4/2024 14:42

Based on a 30th percentile market PE ratio of x8.4, I value CSSG at 86.5p, assuming all Vigilant payments are made in full and on time.

Also, I agree with rivaldo; receiving a large payment due on schedule is not RNSable, whereas not receiving it would be.

[rivaldo] 04/4/2024 14:01

I'm not definite there will be an RNS regarding any receipt of the first £450k due from Vigilant. One could argue that its receipt is due in the ordinary course and therefore if received not RNS-able, whereas if it were not received than that would be newsworthy? I certainly take the view that its receipt should be announced.

WH Ireland say in their update note that they'll resume forecasts/full coverage soon "given the additional focus and enhanced earnings visibility which are now features of the company. We note that the company is trading in line with management plans".

They also note:

"Net cash was also healthy at £2.1m, and we anticipate further substantial payments in respect of Vigilant, with an anticipated recent c.£0.5m cash payment in March ’24 to be followed by a further nine payments of c.£0.40.5m each, and the redemption of £1.3m of Vigilant shares anticipated for July 2024.

WHI view: This morning’s announcement highlights regular earnings streams such as maintenance as well as project work, which is pleasing to see. Beyond this, CSSG is very well positioned in our view to use a meaningful funding stream deriving from the disposal to consolidate its market, making more such wins probable as it increasingly becomes a national player and providing increased growth potential to the business"."

[goliard] 03/4/2024 13:14

Under the tersm of the Vigilant deal, the first payment on loan notes was to be 9 months after completion of the deal.

Today, 3 April, is exactly 9 months after the deal completed, so I would very much hope that Croma is waiting for the cash to appear in their account and then issue an announcement confirming that it has been received. It is an important announcement and whilst confrmation of payment may not move the share price too much upwards, any hint of a problem may see the share price get hit hard.

Vigilant deal terms were as follows;
the Loan Notes (being both capital amounts and accrued interest), shall be repaid as follows:

a) the first payment shall be nine months following Completion;
b) thereafter payments shall be made on each quarter date for a further nine payments;

Completion date was 3 July 2023, so approx £450,000 is due in today from Vigilant.

[rivaldo] 03/4/2024 07:17

Excellent news this morning of another NHS security systems contract win, not so much for the quantum at £0.4m but because it's a further example of CSSG spreading its wings through the NHS.

As the RNS says, "Croma now service several NHS Trust's and healthcare providers". Once a company establishes itself in the public sector it's usually the case that a series of regional organisations or Trusts follow each other once a reputation is established.

For the £9.4m m/cap CSSG this would be transformational alongside the expansion via acquisition propelled by the cash pile.