At first glance, AIM quoted Westminster Group arguably has that look of a business never quite making it, taking on the guise of a company that possesses the promise to deliver, but which to date, has seemingly missed the mark. It’s share price kind of tells the story, where 70p was achieved back in 2014, only to head southwards in the subsequent years which saw a low of just 3.8p registered in the last 12 months.
More recently however, there appears to be real light emerging at the end of the tunnel for this provider of technology security solutions, albeit for now at least, at the more speculative end of the market.
Having recently taken a much closer look, I decided to pick up some shares last week around the 5.75p mark and added a few more this morning, not least, as the company has in recent months won some significant contracts that provide for a really positive move forwards on profits.
The company, for one so small with a market cap of just £20m, actually serves some big and well known blue chip players such as BAT, BP, The Royal Navy and Menzies to name but a few.
Aviation, Marine and various Government agencies are just part of its end markets which spans numerous areas of security from x-ray screening services to surveillance, along with health and safety solutions, the latter of which encompasses Covid issues. Although UK based, much of Westminster’s revenue is derived from further afield, such as the Middle East and Africa along with other ROW territories.
Most recently the company has announced some significant and sizeable contracts which last month led broker Arden to pencil in what appear to be some impressive numbers for next year 2022.
Here, the broker is anticipating revenue for the full year to hit £23.7m which it sees as providing for adjusted pre-tax profits of £5.3m giving EPS of 1.6p.
That looks extremely attractive and on that basis, Westminster, with the shares currently at 6p trades on a forward PER of under 4, where if the numbers are achievable as expected it provides for a springboard to significant upside potential.
Indeed, Arden sees a fair value price of 18p, which giving a PER of close to 12 would be more akin to its peer group market valuation.
Companies that have failed to deliver in the past though understandably leave would-be investors nervous, where credibility takes time to rebuild and there is a degree of salt pinching.
However, a win just last month in central Africa that spans a 20 year period is, according to Arden "conservatively likely worth at least $70m in discounted lifetime value to equity and that is before considering the potential to add cargo screening services on to the deal". The structure of the deal will see Westminster providing comprehensive ground security operations, initially at 4 international airports and 1 national airport in the DRC.
The company is to provide its expertise in assisting the authorities to develop and maintain world-class airport security services, opening up the potential for growth in air traffic by attracting new international carriers and commercial enterprises to the region.
That announcement was subsequently followed up by another win in Africa, which saw the company awarded a long-term managed service contract to exclusively provide port screening services at Monrovia Freeport in Liberia West Africa.
Closer to home though, Westminster has this morning announced that it has been awarded a contract to supply security services to help protect the Tower of London, although no financial details were released.
Not surprisingly and understandably Westminster was impacted by Covid related issues throughout last year which saw the shares slump from around 10p to the 3.8p low, where despite a much more positive picture now emerging, the shares remain largely unloved and off of the wider radar.
In order to support the recent wins and further potential contracts from its extensive pipeline, the company successfully raised £2.5m in an oversubscribed placing just last month.
This provides for some welcome additional stability and Arden expects to see the company moving from a net debt position of £2.1m to net cash of £3.3m in the current financial year and on to a substantial £7.4m for next year.
Notable names on the shareholder list supporting the business plan include HSBC with 6.2% of the company, followed by Janus Henderson on 4.6%, whilst there are likely to be others sitting beneath the 3% notifiable level. Alongside other areas of the business, Westminster has also been active on fever screening solutions for airports and in a previous update, the company referred to having successfully conducted a trial of its offering at the Stockholm Arlanda airport in Sweden which was in association with Menzies Aviation.
Further to that, Westminster added that Menzies would continue to use its solution to conduct operational trials with Air France and other clients.
Subsequently Westminster has said, "both Menzies and their clients were impressed with the versatility of the system, adapting to different challenges and processes and it was expected that this would result in joint business with Menzies Aviation offering the Westminster solution to their global clients as part of their wider commercial package.
The continued travel restrictions and challenges facing airports has meant this potential roll out is yet to happen although airports are now more likely to focus on sanitisation systems, which Westminster offer, rather than fever screening. The joint initiative with Menzies Aviation however has now led to other potential and sizeable business opportunities we are jointly pursuing".
Also Covid related, Westminster has a partnership in place with Certific relating to the latter’s Covid testing programme which sees Westminster providing verification services.
Any positive update from either or both of these areas would also no doubt further strengthen the investment case which already sees the shares looking increasingly attractive providing existing delivery remains on track.
I am hoping to speak with management following next months Interim results, which should provide for a further and more in-depth write up.