Croma Security Solutions Share Discussion Threads

[effortless cool] 08/6/2020 07:42

A great announcement this morning.



CSSG appears to have "had a good pandemic". EBITDA to end-June will be "at least £1.6m". By my reckoning, that equates to c.£770k+ net profit, as opposed to the £910k that I was expecting pre-COVID. It also seems that the interim dividend, which was suspended, is likely to be reinstated.

[effortless cool] 04/6/2020 18:00

Signs of life, at last.

[daisymax1] 19/3/2020 17:09

Why such a drop when only 15500 shares have been traded. Doesn't make sense even though the dividend has been cancelled. MM's trying to make money me thinks!

[effortless cool] 08/3/2020 21:27

This is a tricky one. Accurate revenue forecasts underpin my valuation, and I overestimated H1 revenue by £1.6m; not very good. After normalising for this, more encouragingly, all my other financial statement forecasts were broadly correct, except payables and receivables, which were both about £1.2m above my modelled projection.

Croma Vigilant generates most of the revenue. The interim report is hard to interpret here. "Contracted sales [were] at a similar level to the prior year", meaning, most likely, they were slightly down. Clearly non-contracted business (project work?) was by implication down much more significantly. However, with 79% of Vigilant's revenue now contracted for one year or more, we have pretty good visibility of revenue here going forward. The PROception concept seems to offer good growth prospects too.

Croma Systems and Locksmiths, by contrast, improved revenue by 11% over the prior period. This compares to a 0.1% reduction in the previous full year comparison (3.5% increase if you exclude Biometrics, which looks a dead duck to me) and 8.4% the year before (9.6% excluding Biometrics). This acceleration in growth is hugely encouraging, especially when you factor in that this division delivers a much higher gross margin (c. 3x) than Vigilant.

I look at recent flaccidity in revenues reflects a catching up on the extraordinary accleration in 2018, which came mainly from Vigilant and was project driven. To put this into perspective, revenue growth in for the 2016 year was 20.2%, 2017 was 15.9%, 2018 was 59.2% and 2019 was -1.5%. 2020 H1 is -3.5%. Although the three most recent periods look disappointing as project revenue has fallen back, the compound average growth rate over those 4.5 years is a highly respectable 16.8%.

For my projections, I have assumed 5% future growth, which I hope will prove prudent. My valuation on this basis is 105.7p, 28% higher than the current price. This is based on an adjusted PE ratio set at 80% of the market average prospective ratio, and thus reflects a downwards adjustment due to the recent sharp fall in the market.

Stress testing this by assuming flat revenues but administrative expenses unchanged (reverse operational gearing) gives a valuation of 76.2p, indicating that downside is limited.

An upside test, assuming 10% growth in revenues but holding operational expenses at the base case level, gives a value of 135.8p per share, demonstrating the potential for upside surprises.

The problem now is that we are likely to have a long wait for any more information. There are no broker forecasts in the market and there is typically one erratically timed trading statement each year, so there is quite possibly no news to come until the finals. this is reflected in the 80% multiple I have applied to the market average PE ratio, when a profitable business with secure cashflows like this would normally command a higher multiple.

[effortless cool] 20/2/2020 16:15

There was one on 18 February last year because they were trading ahead of (internal) expectations. I suspect we will only get one this year if trading is out of line, one way or another, with internal expectations.

Of course, we have no knowledge of internal expectations and there is no broker coverage, so there are no market expectations either.

Frustrating.

[tole] 20/2/2020 15:13

Trading statement must be due imminently here

[masurenguy] 14/1/2020 10:41

Interesting business - a niche operator in the very fragmented security sector, which is a growing market, particularly with the overstretch in current police resources. Three main divisions with a couple of embryonic concepts. Regionally based in Hampshire but with the potential to expand into national coverage in due course. Very good investment summary from EC above.

The 3 main divisions are:
Vigilant: Largest division - Sales of £28.5m (82.3%) and operating profit of £1.4m.
Security Systems: - Sales of £2.70m (7.8%) and operating profit of £0.34m.
Locksmiths: - Sales of £3.42m (9.8%) and operating profit of £0.48m.
In addition, two other nascent divisions, Biometrics and PROception, provide further avenues of growth especially with the synergy that they provide with existing trading operations.

Very thinly traded with an average daily volume of circa 6K shares. A total of 14.9m shares in issue and at the current price it has a market cap of just under £14m. Next trading update due in late February.

Major Shareholders

Hargreave Hale Ltd: 1,816,000: 12.2%
Liontrust Investment Partners: 1,156,411: 7.76%
Artemis Investment Management: 970,588: 6.51%
Maven Capital Partne: 302,488: 2.03%
Also the Chairman, Sebastian Morley, holds 575,000 shares or 3.86%.

Onto my Watchlist !

[kaos3] 22/12/2019 07:30

E C thank you for the write up

[bobdouthwaite] 08/11/2019 09:09

I have a small holding so thanks for setting this up.

[effortless cool] 07/11/2019 20:18

New thread for those few of us that are interested.

[effortless cool] 07/11/2019 20:17

==================
March 2020 update
==================

Revised projections based on the interim results.

Revenue .................. 2020 £34.8m .... 2021 £36.5m
Reported net profit ...... 2020 £0.91m .... 2021 £1.23m
Adjusted net profit ...... 2020 £1.05m .... 2021 £1.34m
Reported EPS ............. 2020 5.71p ..... 2021 7.74p
Adjusted EPS ............. 2020 6.63p ..... 2021 8.40p
Dividend per share ....... 2020 1.96p ..... 2021 2.16p
Net cash ................. 2020 £3.16m .... 2021 £4.23m

====================
October 2020 update
====================

Revised projections based on the full year results.

Revenue .................. 2021 £34.5m .... 2022 £35.0m
Reported net profit ...... 2021 £0.61m .... 2022 £0.73m
Adjusted net profit ...... 2021 £0.72m .... 2022 £0.81m
Reported EPS ............. 2021 4.08p ..... 2022 4.91p
Adjusted EPS ............. 2021 4.85p ..... 2022 5.45p
Dividend per share ....... 2021 2.15p ..... 2022 2.36p
Net cash ................. 2021 £3.63m .... 2022 £4.13m

These are still quite speculative but at least the recent results give us some COVID-affected figures to base assumptions on. I have reined back my 2021 figures quite materially and extended projections to cover 2020 on what I believe is a relatively cautious basis. My valuation is forward-looking and based on figures for the period 6-18 months ahead (2021 H2 and 2020 H1).

My valuation drops to 78p per share. At 32% above the current price, this represents a BUY under my methodology. I have put my money where my model is and increased my holding to 237,500 shares. It is still the worst performing investment in my portfolio, so my record here is not a good one. Note, however, that the restoration of the interim dividend and the increase in the final dividend is quite a powerful statement of confidence by those closest to the business.

====================
March 2021 update
====================

Revised projections based on the interim results.

Revenue .................. 2021 £33.4m .... 2022 £35.5m
Reported net profit ...... 2021 £0.53m .... 2022 £0.70m
Adjusted net profit ...... 2021 £0.65m .... 2022 £0.78m
Reported EPS ............. 2021 3.55p ..... 2022 4.71p
Adjusted EPS ............. 2021 4.36p ..... 2022 5.25p
Dividend per share ....... 2021 2.15p ..... 2022 2.36p
Net cash ................. 2021 £3.82m .... 2022 £3.88m

The COVID-impacted 2020 H2/2021 H1 have demonstrated that CSSG can perform profitably even under the most trying circumstances, so downside appears to be limited and the business should be able to reliably keep pumping out enough cash to support a gently progressive dividend. However, top line is the issue here. Revenue showed strong growth up to 2018 H1, but then came to a grinding halt. The business is on the cusp of gaining substantial benefits from operational gearing, if and when they are able to resume a meaningful top line growth trend. If they cannot do that organically, which recent years indicate may be the case, then acquisitions are an alternative route. Encouragingly, in this regard, the interim statement notes the "interesting opportunities which have emerged as a result of the pandemic".

My projections assume that revenues recover to historical peak levels by 2022 H2. With these assumptions, and assigning CSSG a target adjusted PE ratio set to 75% of the market average, my valuation increases to 89.5p per share. At 22% above the current price, this represents a BUY under my methodology.

I won't be adding to my holding, however, until I see definitive evidence that revenue is increasing at least in line with my projections. I do believe that the Croma business model presents a real opportunity to grow in a fragmented market and the lack of delivery here in recent years has been disappointing. If management cannot achieve at least £18m of half-year revenue by 2022 H2, then I would advocate that the business be put up for sale.

===================
June 2021 update
===================

Croma Security Solutions (LON:CSSG) issued a very encouraging pre-close trading update this morning, advising 2021 EBITDA will be at least £18.5m (2020: £17.5m) and net cash stood at £5.5m (2020: £4.1m).

It is hard to incorporate this information into an updated valuation, however, since we still lack two vital pieces of information; we don't know revenue, beyond the fact that it is ahead of last year, and we don't know what how much of the EBITDA is due to "other income", i.e. furlough payments, during H2.

Notwithstanding the above, I have had a go and my revised projections are as follows:

Revenue ................. 2021 £33.9m ..... 2022 £36.5m
Reported net profit ..... 2021 £0.91m ..... 2022 £1.04m
Adjusted net profit ..... 2021 £1.03m ..... 2022 £1.12m
Reported EPS ............ 2021 6.08p ...... 2022 6.99p
Adjusted EPS ............ 2021 6.90p ...... 2022 7.53p
Dividend per share ...... 2021 2.00p ...... 2022 2.15p
Net cash ................ 2021 £5.51m ..... 2022 £4.65m

Note that my 2022 assumptions are deliberately intended to be prudent, with the furlough income falling away but only being replaced to a limited extent by additional revenue.

Maintaining my target PE ratio of 75% of the market median. This gives a target price of 125.3p, some 60% above today's closing price. Thus, I believe that there is material upside here, and more besides if my estimates do indeed prove to err on the prudent side. Also, even after the strong rise seen today, it is pretty much impossible to come up with a set of plausible assumptions that value the company at its current market cap, so downside would seem very well protected.

[brumont] 15/9/2019 23:27

Sure you can answer. Simple web search will tell you it was developed by Hitachi, not cssg.

[kaos3] 19/8/2019 13:29

how much money was invested in Croma system and "FASTVEIN™ The most advanced biometric system in the world providing the equivalent security & accuracy of iris scanning, but at a fraction of the cost - over the years and how the accounting treated them?

how much money does it generate in revenue and profit?

how much business is it from business from private and from government (directly and sourced out - eg indirectly)?

simple Qs that I can not answer.

[kaos3] 19/8/2019 12:09

my prayers - I wanted to enter since it was 40p and missed it lol

I newer knew where to place - understood their tech department btw. also maybe

[daisymax1] 19/8/2019 12:00

And still no RNS from company!
What's going on?

[rossco] 17/8/2019 21:36

Steady small selling from Wednesday morning but I have not seen any announcement.
There was a Trading Statement on 4th September last year so hopefully we will get some news shortly.

[daisymax1] 15/8/2019 15:13

So what's going on?
Downward movement for a few days. Can't be Brexit as this would have been red for weeks.

[prokartace] 17/5/2019 16:08

Why are we looking at a 10p or 10% spread between bid and offer? Has 1 of the MM's stopped making a market in it? Anyone have level2 to see that?

[daisymax1] 30/4/2019 10:11

So, everyone is profit taking today negating the gains of yesterday.

[effortless cool] 29/4/2019 13:09

I've been struggling to build a holding in these, but today's rise has produced some much needed liquidity and I managed to pick up two lots of 25k, albeit at a cost. I still think there is plenty to go for here, however.

Having now established a decent sized stake, I'll start posting the results of my analysis, although time constraints mean that I am unlikely to be able to address this before late May.

[daisymax1] 19/2/2019 13:56

After so long in the doldrums it's looking good. About time too, still quite a spread between bid and offer though.