Croma Security Solutions Share Discussion Threads

[likitorma] 12/3/2021 11:04

CANACCORD clients are dumping.

[bookbroker] 12/3/2021 11:03

Like to know what Canaccord’s agenda is here, increases holding then decreases, and so forth. Noticed the large block go through t’other day. Maybe a Cross trade or someat. This company needs to get its act together, they seem oblivious to shareholder interest, is Morley just shagging arrogant or ignorant. Let’s see some desire for Christ’s sake.

[bookbroker] 10/3/2021 15:00

Curious to know what is holding this company back from investing further in the security centre model, they seem exceedingly cautious when they understand the existing model works ok, a more dynamic approach would be useful. They talk continuously about options, just bloody get on and make a decision rather than analyzing the whole time.

[rivaldo] 07/3/2021 18:21

I've been in touch with the analyst at WH Ireland and pressed him on the production of new forecasts - he was actually extremely responsive and in agreement that these were necessary. He's "keen to reinstate forecasts" in an underpromise and overdeliver manner. Which imo suggests that perhaps it's the company who are reluctant to agree numbers until say the pandemic has begun to ease and things become clearer.

Hopefully we won't have to wait long given the excellent progress with vaccinations.

[effortless cool] 02/3/2021 10:30

Cheers, rivaldo. I wish they would commission WHI to do some proper forecasts, however, this is the second or third "first light" output from them.

On valuation, I do include a credit for what I identify as "excess cash". This is cash projected to 18 months after their last published results, less my assessment of the amount of cash they need to hold as working capital without the dividend coming under threat. This latter figure looks at historical cash drawdowns over successive periods from the cash flow statements, adjusting out any discretionary spend (e.g. acquisitions). I am including credit for £3.2m excess cash using this method.

[rivaldo] 02/3/2021 10:07

EC, your thoughta are appreciated.

My own valuation would be higher as imo the £3.9m cash pile against the £10.9m m/cap is so substantial that one should produce a valuation which includes this sum rather than just a P/E based target.

Particularly as CSSG are likely to make an earnings-enhancing acquisition using this asset in the near future.

WH Ireland have produced a new note on CSSG - this is a "First Light" note and doesn't include forecasts, so I assume this is an initial take which will be expanded upon soon:

"Croma Security Solutions (CSSG) –Corporate –Half Year Report:

Covid disruption held to minimum; well-placed for the full year
Market Cap £10.7m Share Price 72p

Generating £0.9m EBITDA in the six months to December 2020 (H1-21E), CSSG has produced a highly creditable set of H1 results, particularly set against the backdrop of the second lockdown, which partially impacted their business as before. Sales overall at £16.4m tailed H1-20A by just 6%, while EBITDA saw a £200k-plus reduction YoY –but it is important to note that this includes some one-time business which was in any case in run-off irrespective of Covid / lockdown, as previously flagged by the company. Net cash at £3.6m is meaningfully up by 89% YoY, reflecting the cash-generative qualities of the business even in difficult times. Encouragingly, trading patterns are good in the current calendar year (FY-21E H2 from thecompany’s reporting perspective).

Divisionally, thanks to Covid, this is a tale of varying developments, with the well-respected Vigilant manned guarding operation (manned by ex-military personnel and now offering a well-received front-of-house service) suffering little or no impact from the pandemic –in fact, possibly emerging as a net gainer, and succeeding in growing revenues by as much as 6%. Again, this is highly creditable since we estimate that H1 run-off work may have declined by as much as £100k YoY. In Systems and Locksmiths, revenues fell YoY, inevitably, given that trading was below normal levels due to Lockdown 2; however sales grew strongly as against the second half of the prior year, by some 31%, a tribute to the fact that CSSG’s Locksmith centres were able to open for the whole of the six months to December ’20, as they were not in the first lockdown. That said, Security Systems clients such as entertainment venues remained closed, -bearing everything in mind, we view this as a very decent outcome at the divisional level.

WHI view:

We expect similar dynamics as before to continue to play out in H2, in other words (1) good underlying growth from Vigilant, which continues to fire on all cylinders, (2) the non-underlying business flagged previously to have been concluded, (3) lockdown generating its own security concerns which are answered by manned guarding supporting Vigilant, (4) continued recovery within the Security Systems and Locksmiths businesses, moderated by Lockdown 3. Looking further forward, we view the company as a gainer from renewed economic activity looked for in the second half of calendar 2021, and see future opportunities within the increased emphasis on security, the strong brands within the group (notably Vigilant) and the excellent track record in winning prestigious local authority and other contracts. The company has highlighted potential consolidation opportunities going forward, and this too seems very believable."

[bookbroker] 02/3/2021 09:35

Fully appreciating the low margin element to the business. That is why the retail side should be expanded.

[effortless cool] 02/3/2021 08:53

I have certainly been shown to be wildly optimistic in my first projections in late-2019, with current actual earnings less than half the level that I forecast. As a result, I am currently sitting on a large loss.

I have not sold, however, because I feel that the story behind the six points that I set out in my investment case remains broadly intact.

As to multibagging, CSSG currently has an £11m market cap. I don't see why they shouldn't be able to triple the size of the business over the next five to ten years. Combine that level of growth with operational gearing and multiple expansion and you have a multibagger on your hands.

The fly in the ointment is their failure to grow for three years. I need the management to demonstrate that they can deliver top line growth.

[bookbroker] 02/3/2021 07:50

It certainly has the possibility to develop, the Fastvein technology is a load of hot air, mentioned many times but is irrelevant. They talk a lot about options in their reports, but never seem to grasp the nettle. This time it mentions other businesses approaching them in the security guarding sector to link up, but why do CSSG need to do that, they have enough expertise and reputation to grow their own business by tendering for contracts. It may be a fragmented industry, but the barriers to entry relatively low, certainly to getting SIA certification. Reputation is everything, and companies like Showsec on the the Manchester Arena contract show that their staff are sufficiently trained to deal with such a serious situation.

[bookbroker] 02/3/2021 07:43

You seem to have been wildly optimistic, one of your above comments in the header article saw CSSG as a multi-bagger, so your tune has changed considerably, and I am not sure which part of the business you imagined would make such a meaningful contribution. I believe the security centres have considerable scope for growth, but Morley is so bloody cautious, he needs to appoint some more experienced non-execs to the board if he is not sure how to execute the business plan.

[effortless cool] 02/3/2021 05:17

Header updated as follows:

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.

[masurenguy] 01/3/2021 16:08

Very illiquid with circa 56% of the shares are held by insiders plus 3 external holders.

Insiders
R M Fiorentino (CEO): 26.2%
Other 5 directors: 7.0%
Total Insiders: 33.2%

Other major shareholders
Canaccord Genuity Group Inc: 12.25%
Liontrust Investment Partners LLP: 5.20%
Francis Erard: 5.00%
Sub Total: 22.45%

[rivaldo] 01/3/2021 13:45

Moving up! Looks like a 27k buy at 74p did the trick.

[bookbroker] 01/3/2021 08:54

And thoughts about not paying dividend reflect likelihood of making some sort of acquisition. Growing the security centre side is the most logical thing to do, they can already offer a complete service, so why not expand out of the south east to other large metropolitan areas, areas like Knutsford, Hale, etc. Affluent areas with large gated properties would seem relevant.

[bookbroker] 01/3/2021 08:39

Figures are fine, be nice if they had mentioned expansion of security centre side of business, very cautious management here, talk a lot on an annual basis of growing the business, I’d like to see words put into actions.

[likitorma] 01/3/2021 08:39

Since 2018, there has been hardly any growth in income or profit. These metrics have even been coming down.
No growth prospects and cash will likely be wasted on acquisitions which in turn will take ages to be value accretive.
Explains why share price fails to move up.

[rivaldo] 01/3/2021 08:16

With 36% of the m/cap represented by the cash pile, that means CSSG are on track to make an annualised PAT of almost £800,000 against a net EV of only £6.8m.....

[likitorma] 01/3/2021 08:04

"satisfactory" not good enough.

[rivaldo] 01/3/2021 07:54

Agreed Mas, pretty encouraging - particularly with the cash pile up to £3.9m against the £10.7m m/cap!

The outlook is very good too - "Positive trading patterns have continued into the second half of the year", and "Well placed for a satisfactory result for the year".

[likitorma] 01/3/2021 07:53

Disappointing that dividend has been removed yet again.

[masurenguy] 01/3/2021 07:39

Very solid progress !

Interim Results: A Stable Performance with Strong Cash Generation

Croma Security Solutions Group plc the AIM listed total security services provider announces its unaudited interim results for the six months to 31 December 2020.

Sebastian Morley, Chairman of CSSG, said:"Having established new work practices for our security teams to operate safely during the first lockdown, we were confident, entering the new financial year in July 2020, of our ability to continue to operate safely, successfully and profitably. Naturally, the retail side of our business was the area most impacted by the ongoing pandemic which masked an increase in demand for our services to guard physical assets. This translated into a stable H1 trading performance with revenues slightly lower by just 6% to £16.36 million. Overall, the business is well placed being profitable, and having a high cash balance of £3.9 million which could support opportunistic acquisitions arising in the future out of the current crisis."

A solid, profitable performance

-- Demand for Croma's innovative security solutions remains strong
-- Revenues stable at £16.36m (H1 2019: £17.36m)
-- Generating EBITDA of £0.86m (H1 2019: £1.1m)
-- Other than lease liabilities, the Group remains ungeared with cash balances up significantly to £3.9m (31 December 2019: £2.3m)

-- No interim dividend proposed, as a prudent measure, and instead waiting to complete the financial year

Increased demand for guarding of physical assets and recovery post lockdown

-- When measured against the six months ended 30 June 2020, revenues from manned guarding increased by 6%, with increased demand for temporarily closed premises

-- Our Systems and Locksmiths businesses, which were impacted more heavily by the first lockdown, also posted impressive sales revenue gains, up by 31% vs six months ended 30 June 2020
-- Croma PROception the ground-breaking front of house business, continues to win new mandates
-- Strategy to establish a national chain of security stores remains unchanged

Outlook

-- Positive trading patterns have continued into the second half of the year
-- Well placed for a satisfactory result for the year

The fundamentals of our businesses have been unaffected by Covid-19 and only sales from the retail side have naturally reduced given temporary store closures and reduced consumer mobility. Other than lease liabilities, the Group remains ungeared with significant cash assets. These factors, together with some interesting opportunities which have emerged because of the pandemic, combine to give the Board confidence in the outlook for the Group.

[bookbroker] 28/2/2021 10:53

I should call them security centres as they are more than merely locksmiths.

[bookbroker] 28/2/2021 10:50

Sure, But I suppose if there is one part of the business that has more scope for growth it will be that one.

[masurenguy] 28/2/2021 09:14

Well Locksmiths accounted for less than 10% of overall sales last year so that should not be particularly significant. It all really depends upon how Vigilant performed during the past 6 months.