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The H1 cashflow is interesting, especially as these accounts are the first which split out the (new) core business and the security business, which is up for sale.
When i saw cash was now c£600k i was a little concerned, however, the cashflow statement makes better reading. This is for the full company and show cash generated from operating activities was £755k during H1. Almost £1.5m was spend on acquisitions and related costs and c£500k for financing, the majority of which was the dividend. So the £2.5m cash at the beginning was reduced to £1.35m of which almost £750k is earmarked for Vigilant and £600k for the remaining core business.
So when Vigilant is sold (over £30m rev and maybe £1m EBITDA to take into account the new contract win in 2023) it will also have £750k cash.
I am now hoping the total sale valuation will be c£5m rather than £3 to £4m.
This will give Croma a decent war chest for further acquisitions and possibly even a special dividend - a 7p special dividend would be 'only' just over £1m in total.
it would be nice to see less need for WC
The H1 results today look pretty good as regards:
- the continuing business is trading well, with revenues and EBITDA up 25% and 18%
- the sale of Croma Vigilant looks set to complete within the next couple of months (before the 30/6 year end)
- CSSG still have a £0.6m cash pile. The m/cap is only £7.5m, yet Vigilant is a business which had almost £16m turnover in H1 and potentially £0.8m or more PBT per annum for a buyer based on prior results - this can surely achieve a sale of anything from £3m at minimum and maybe much more?
- the iLOQ partnership looks to be very good news and has started well
Hopefully the share price is now at the bottom and perhaps can begin to bounce from here.
Expecting to hear more in the next two weeks
40p would give an overall valuation of c£6m. That seems ridiculously low.
Currently we are profitable, have c£3m in the bank and the security business is potentially being sold for maybe £5m .
A completely different company but IMMO recently sold its main business (location headsets in zoos etc) for more than the value of the whole company due to the low SP. The shares rose c50% in a day.
Vigilant has won some new contracts recently, which is not reflected in the SP, so the sale price, if agreed, could surprise a few.
c40p?
v quiet
I'm wondering where the Jolly Mad Bottom here will be this time??
its all gone quiet regarding the Vigilant sale/divestment.
I think i remember reading that there's a big contract up for renewal in March so potentially both sides are waiting for the outcome of that.
Hopefully news soon.
Cheers shandypants2, good points re the receivables. If you're correct then CSSG could have more cash than the market cap if/when Vigilant is sold!
WH ireland's latest update is out, and once again includes no forecasts, but is at least a decent summary of where CSSG are at following the Safecell acquisition:
"Croma Security Solutions (CSSG) – Corporate – Complementary acquisition in security and locksmiths’s reflects significant m&a opportunities
Market Cap: £8.9m Share Price 55.5p
This morning’s RNS from CSSG provides further colour to the significant m&a /
consolidation opportunities in security systems and locksmith’s following the recent AGM update which outlined the potential divestment of CSSG’s specialist guarding services. A price of c.£0.75m for Safecell Security Group equates to a sub-4x historic PBT multiple based on the eleven months to November 2022, an undemanding multiple in our opinion.
Moreover, based in Manchester, the acquisition is highly complementary from a
geographical point of view, since the company already has activities in Bury, North of Manchester as well as the Safeguard business in Warrington which the company acquired last year.
We view the acquisition, although small, as very supportive of CSSG’s business going forward: (1) We note that experienced management at Safecell is staying with the business; (2) bringing the two Manchester operations together with this one is likely to create operational synergies, (3) cross-sells of the spread of services within the group are likely. Safecell is primarily a security systems business, with margins to match – typically these are 20% or more at an operating level, as reflected in CSSG’s own historic margins.
As a synergistic opportunity, Safecell is likely to enhance the overall margin while, as stated in the announcement, providing earnings enhancement.
WHI view: With significant change at group level waiting potentially in the wings (the disposal of Vigilant removes 83% of sales but less than half of operating profits), the company as a whole is becoming a higher margin business - respectively 14% and 19% at Locksmith’s and Systems in reported FY22A EBIT margins in the prior year, as opposed to the low single digit margins for Vigilant which are typical of a manned guarding business.
As the company has highlighted before, the consolidation opportunities continue to be strong as well as the prospect of building a national security centre. In relation to Vigilant, it is important to remember that disposal discussions are said to be at an early stage and that there is no inevitability to the proposed divestment either to members of the management team or anyone else. However, assuming that the divestment does occur, we read this morning’s announcement as helpful in further highlighting the close match of such opportunities as Safecell."
yes, agreed, another good acquisition at a reasonable price.
IMHO cash is probably higher than you estimate. At last results it was just over £2.5m but this excluded trade receivables (money invoiced but not yet paid) which had increased by £1.7m YoY. We were told that 91% of this had been collected by the time the accounts were published. So potentially there is c£4m before this acquisition.
As you say this is before any money received for the security business currently being sold - hopefully another c£5m plus.
Taking a prior forecast calculated elsewhere (by the poster Effortless Cool) for this year of 5.84p EPS and next year of 8.04p EPS, and pro-rating in six months of today's acquisition, CSSG would be forecast to make almost 6.5p EPS this year and around 9p EPS next year.
Plus CSSG are likely to have say a £1m-£1.5m cash pile against the £8.5m m/cap, so still headroom for further acquisitions (even before the Vigilant divestment sale proceeds, assuming this happens).
Another nice earnings-enhancing security centre acquisition - the third this year.
£0.75m consideration will bring in almost £0.2m PBT plus £0.4m net assets. More interestingly, there are insourcing synergies which should increase that profit contribution nicely.
Plus CSSG state they're "hopeful of completing similar earnings enhancing acquisitions in 2023".
Here's WH Ireland's initial view on the planned divestment - shadypants2's interesting point on the much higher margins in the retained businesses as opposed to the Vigilant guarding business being disposed of is noted here too:
Extracts:
"Today’s AGM update from CSSG highlights (1) continued inline trading, (2) plans to continue with the group’s strategy in recent years of consolidating the locksmith’s market, and (3) potentially a significant divestment (and accompanying Board changes) which would further that strategy.
The proposal to divest CSSG’s specialist guarding services, which accounted in FY22A for c.83% of sales and c.43% of operating profits (pre central costs) would significantly increase the focus on locksmiths (FY22A: 9% of revenues and 27% of EBIT) and electronic security (7% and 30%), and we note that the company has highlighted the ongoing “multiple” consolidation opportunities, in addition to the success of the two acquisitions made in 11/21 and 07/22, suggesting that funds raised from divesting manned guarding could be deployed further to advance the consolidation process in line with this proposed renewed focus of the business as a whole."
"In terms of the underlying characteristics of the businesses, as the data provided above makes clear, the proposed ongoing businesses are higher margin – respectively 14% and 19% in FY22A, as opposed to the low single digit margins for Vigilant which are typical of a manned guarding business."
yes, security made 0.5m on £2.6m rev and locksmith £0.4m on rev of £3.2m so these 2 are clearly the higher margin part of the business.
Vigilant is a high labour business with low margins - £0.7m profit on almost £30m rev. Although new contracts show it is growing there are cost pressures, especially as wages/minimum wage is increasing from April. Furthermore, it appears a number of existing contracts are up for renewal.
I would expect the buy out price to be anywhere from 5 to 10 x operating profit. So £3.5m to £7m. I suspect it will nearer the lower end with some add ons based on performance over the next year or two.
Overall admin expenses were £6.2m so we need to understand how much of that is attached to Vigilant as clearly the bulk of this cannot be supported with the remaining businesses.
Overall i see this as a positive - getting rid of the Chairman, Morley, who hasn't really grown the business and yet takes a big salary each year isn't a bad thing IMHO.
The two remaining divisions made £0.9m operating profit between them last year. CSSG would also have a cash pile after the disposal of (say) £8m-£10m.
Which compares pretty well to the £8m m/cap at the current share price.
Well well....looks like the manned guarding business will be sold off to its management and the focus will be on security systems and locksmiths expansion.
Vigilant made £0.7m operating profit last year, so what might it be sold for - say £5m+?
CSSG already had £2.6m net cash at the year end and this looks like it was rising fast up to November due to debtor collections.
The core numbers were pretty decent imo in the current climate (it was the headline numbers affected by reduced government pandemic support which perhaps prompted the selling).
The outlook in particular is very confident, as evidenced by the raised dividend and the narrative.
Once again WH Ireland has failed to produce specific forecasts for CSSG, even following the final results! Anyway, here's their summary FYI:
"WHI view:
Growing its contract portfolio, Vigilant has again provided evidence of its ability to convert pipeline opportunities into contracts, notably with the major £5m p.a. contract win awarded by a central London property owner and developer, as well the prestigious Edinburgh St James centre win announced in H1-21 (£1.3m).
Looking forward, we see a number of positive drivers for FY23E, notably the full year effect of the recent major contract win; the impact of a long list of contract awards secured, mainly within Vigilant, after the year end; the potential benefits of the newly acquired stores; and the potential impact of iLOQ.
We note the healthy level of contracted revenues of 1 month-plus (88%), and while a significant proportion of sales will need to see contract renewals in the New Year, CSSG’s track record has generally been very positive from this perspective. Regarding the iLOQ opportunity, group-wide training has now been completed enabling CSSG’s employees to market and install this product country-wide (so far one £0.3m contract gained), which we believe could present an
interesting area for growth moving forward."
on reflection, I don't think it's fair to speculate idly about why the audit was delayed a little
we just cannot know what happened, and they seem an experienced aligned decent management team
not doing (typo)
gl to all here...and to a management team that are well invested, experienced and seem total decent (to an outsider like me)
I am not going to invest any more in CSSG
But there was confidence shown today, and clearly there is nothing to suggest that the management is not do a decent job in challenging conditions
Managing debtors is just part and parcel of what all businesses have to do, and it is often quite a challenge for small, growing businesses in tough economic circumstances
Agreeing with Mr Rivaldo.
The EBITDA number is meaningful. The write-down of Goodwill should not be seen as meaningful. I have not yet read why there was a write-down of Goodwill, but sometimes an adjustment therein is dictated by the auditor.
I was a CSSG shareholder in the past, but not recently. Looks attractive here.
Good luck to all.
Robert
Dodged a bullet as I almost bought back in at 60 but "Cash collection has improved post year end and as at 10 November 2022 we have realised approximately £5.7m or 91% of our year end debtor book"
I guess this helps pay the increased dividend (£300k ?), but I wasnt immediately sure that paying a dividend was a smart move at first glance
Key question then is where has that cash gone. They state the drop in cash position is due to investments over the course of the year. Needs some digging.
I thought it looked good at first pass. Not sure if the drop is people taking your view JS, or just the fact it is a liquidity event on an illiquid stock in a dreadful market. Could be an opportunity down here but needs a thorough look first.
no, not remotely good imv...the cash generation is a key issue: they need to show that they can generate decent free cash
one of the main issues is dreadful days on hand for debtors....and even their 91% paid by November begs the question of bad debt provisions
Today's prelims show £1.59m EBITDA, well ahead of the "at least" £1.5m EBITDA previously flagged.
The core business delivered £1.5m EBITDA, well ahead of last year's £1.2m (before government pandemic support).
CSSG still have a £2.6m cash pile despite the various expansion costs this year, and have raised the dividend 5% to 2.1p.
The headline numbers are pretty misleading due to (1) prior year govt support and (2) this year's goodwill write-off. So in this case EBITDA is the most relevant measure.
Including the new £5m per annum contract win, the outlook is nicely confident:
"We are now seeing the benefit of that investment, in the current financial year with significant new contract wins that will boost our future financial performance."