Member Info for DrMaccers

Westminster Group (WSG)

This company has been a complete crock over the years. The fabled big airport contract that would be transformative for the company has been in the pipeline almost since I started trading (I remember then CFO Ian Selby talking a multi-airport contract at The UK Investor Show 2017).

Here’s the chart in that period.

It’s a clear stage four downtrend over time.

The contract finally landed and was announced in June 2021.

But it’s taken almost three years for the contract to be ratified and start commencing.

As can be seen in the chart, the market expected the contract to be signed and we can see that in the rally.

However, I was invited to a management call and decided to see this was worth looking at further.

It’s easy to write off companies that have historically been dogs. And a lot of the time, these companies are often still dogs with little to offer.

The alpha, or the outperformance, often lies where the market believes a stock to be a dog that is no longer so.

These have often been my greatest trades where the stock has had strengthening fundamentals, long consolidation, and is hated by the market.

Westminster Group is certainly hated by the market (again, this is not too difficult to understand given the absence of the hoped for contracts).

With me on the call were the chief executive Peter Fowler, the CFO Mark Hughes, Simon from Zeus, and two other private investors.

There was a brief slide deck given (the same one on the Investor Meet Company) then we got straight into what everyone cares about: the signing of the DRC contract.

Eagle-eyed RNS readers will spot that in 2021 this was announced as being for 20+ years. It’s now 10 years with a potential 5-year renewal. This was due to some legal issue in the DRC called the PPP (the Public-Private Partnership - I have no idea why this is but this is the reason given by Fowler).

Mr Fowler says he’s not worried about this because Westminster will own all of the equipment (“many millions over the period of the contract”) and at the end of the 15-year contract (“a five-year renewal is pretty automatic”) the client either has to renew the contract or buy all of the equipment from Westminster within 30 days.

The contract also has international arbitration so any disputes will be independently dealt with.

A 10-year contract still has the potential to drive the share price, so I’m more concerned about this going forward, hence my question about what can stop this happening.

Mr Fowler told us that nothing can stop this now as boots are already on the ground getting everything set up and ready for operations and revenues to formally commence in July 2024.

Added to that, there is a contract termination clause that is 5x the annual contract value, which, at the expected first year revenue is estimated at $10 million (USD) within the first 12 months. So $50 million to cancel

That’s actually incredible

So the base contract grows at a minimum of 10% a year even if there is no increase in passenger numbers

There is many inbuilt security features (if you pardon the pun) in the contract. They will be putting a good few million of equipment into the airports over the life of the contract, paid for from the revs of the contract. If at the end of the 15 years, DRC doesn't want WSG to continue, then they have to buy all the equipment off them within 30 days. Quite the golden handcuffs to keep renewing it.

The $25 per passenger can be renegotiated every year with the lowest amount it can increase if there isn't an agreement is inflation in DRC

If the contract gets unilaterally canned, not only do they not own any of the equipment so airlines would likely immediately stop flying there, they have to pay x5 yearly revs in an international arb court.

Basically they have done a bloody fantastic job at trying to mitigate risks within their control and to be fair, they've actually done a brilliant job here, credit where its is due. I have a large holding and have been critical to their faces over the past 3 years but they've hit this one out of the park and i truly believe this contract alone will be worth north of 30p/share in 3-4 years. I continue to hold

I mean, there is literally a signed contract that starts in less than 90 days. It's a minimum of $10mil in its first year and likely to be multiples of that after a few years. It is profitable from the first day and profit margins rise thereafter. There was all sorts of British government lead trade envoys and ambassadors at the signing and indeed the ambassador co-signed the contract. Official UK government social media channels live tweeted it, but yea, "The Fooler has fooled again"

The cognitive dissonance to keep posting this tripe out of spite is mind blowing. It says a huge amount about you and your trading/investing history im afraid.

What specifically has been "fooled again" please?

Poor you. Literally i presume. Not too late to get these before they 10 bag or more. When you take investing personally you tend to lose it all like you've done.

Yes I did state initial revs, they will be more than $10mill in first year.

Peter says it will be very profitable from day 1. So with opex and capex initial year or so margins might be 25-30% but as the operation is geared the more passenger revs goes straight to bottom line and margins go towards other MSCs at 50%+

If they get no other new business and just run this DRC deal, the future is likely to be fantastic.

Here is a balanced assessment

Risks first...

DRC war - there is a spot of trouble around Goma with Rwanda but DRC is the size of Europe. A large scale war would clearly not be good

Global pandemic or local epidemic - clearly a Covid mark 2 would not be good for air travel or a more localised one. There was Ebola in 2018 but that was isolated to a small eastern region away from the big airport.

Some sort of coup - If the DRC contract is unilaterally stopped there is provision for international arbitration to impost 5 years revs as payment

Positives

The contract is now signed and it is starting, nothing is stopping that

Revs are paid by international airlines not DRC gov

The initial $10mill in first year revs comes from an historic embarking passenger number of 400k. This is very likely to be higher now and will certainly be higher going forward. Qatar have started flights, Air France are increasing, BA will start post next airport audit in Nov. Dubai etc are looking to start routes. The international passenger growth will be huge and in line with other african countries. As the contract is geared, the more passengers embark, this goes straight to the bottom line as the costs don't increase

Cargo screening will be coming after the international passengers have been sorted. DRC can't scan its own cargo leaving adding huge cost and time.

Domestic pax numbers are x2-3 that off international pax which should lead to a doubling of the international revs.

All in all, after 2-3 years with international growth, cargo screening and domestic travel, the contract will be paying $25mill in revs with say even 50% margins to give $12.5mill or £10mill profit.

£10mill profit on a PE of 10 is a 10 bagger from here. How nice.

There are risks but the reward is huge. No one is making anyone buy and frankly the weird negative ex holders here need some medical attention but ive a large bet and im happy to wait for the numbers to come in and the value to be attached.

They get x5 of yearly revs if they are terminated

There’s a signed contract with about 300 present and lots of gov ministers from each country so it would be a good spoof

Hi misty I had a meeting with Peter yesterday so I’m pretty well informed

So the last one was 3 years ago?

Show me a list of sub £20ml AIM companies not to place in last 3 years now

Hi

This is illegal market manipulation by the way.

It was overwhelmingly positive.

The $10mill is the very lowest it will ever be and even in the first year it is highly likely to be in excess of this.

This is based off old embarking passenger numbers which will inevitably gone up. It also excludes new routes like the x2 non stop to Qatar, further Air France and likely flights to UK via BA. UK has the 3rd largest population of Congolese outside of DRC so its a huge market and the next inspection is November which should then allow BA to fly there thanks to WSG.

So i would be surprised if there is no uplift in the initial $10mill quote and in a few years with the addition of domestic and cargo i can't see it being less than $30mill. It is a truly transformational contract and being able to buy right now at around 3p is a joke.

The broker call is the same broker call that happens after every interims and end of year financial results. The only new thing is it was delayed a couple of weeks so DRC could be discussed, its not some secret placement ramp. They've not placed in 3 years and Fowler has continually said they won't and specifically they won't for this deal.

I certainly questioned if it would ever get to this point to him directly, so from my point of view, he's got a lot of credit back in the trust-o-meter.

No it’s via the broker for mostly their clients.

It will be put to them to do a full investor webinar again tho

You don’t need to TR1 if held in a nominee account like IG, HL etc

For a bit of colour,

The embarkation tax in DRC is called Go Pass which currently runs at $60/person

Even 200/flight for 150 flights a year = 30k more passengers paying $60 = $1.8mill

If WSG hat half that’s $900k more in revs with one extra route

The fact Qatar are doing this looks favourable for EU to remove them from the blacklist, especially with WSG on board and a brand new airport. Easy to see how a few new EU routes increases our revs nicely

Read across to SL and the Italians helping them off the EU blacklist too

Woodys - you said DRC was off EU blacklist from 22nd march. What source is that?

Are you a moron?

You want to pump the price up for a quick buck but what do you think will get someone to buy

1)You spamming a board with absolute garbage drowning out

2)Long term, well researched, large holders posting well thought out posts

Absolute child

Its been a slog being a WSG shareholder but now the worm has turned.

We can see how the DRC deal is with about 15p to the SP on the first year revs. These will significantly increase with new airport and off the EU blacklist, not to mention cargo/domestic screening revs. Finger in air, revs likely to at least double over the course of the contract.

With this finally being delivered, Peter has bought some credit back in the trust-o-meter so when he says there is a few imminent sizeable MSCs out there then im more inclined to believe him. Another the size of DRC would make a mockery of the MCap. It's not hard to see how they see 26p with 1-2 more MSCs.

This is the Fowler family pension as well so they really do want the SP up like we do.

The short term flipping seemed finished on friday, more colour can be got on the calls wed and when debt funding for the very small short fall in DRC capex is confirmed, we are on an easy hold into double digits.