Zeus's re-initiation of coverage on CSSG - part 28 Aug 2024 10:01
And the section on valuation is also useful, with a 92p current core valuation and an indicative valuation post-acquisitions of 119p:
"Valuation
The current market valuation of CSSG seems, to us, anomalous, when the accumulating
cash deriving from the sale of Vigilant is taken into account. With the company’s market capitalisation currently standing at £9.6m (based on 13.7m shares in issue, Treasury Shares excluded, and a 71p share price), this is well ahead of the £2.1m actual net cash balance at end-FY23; and, indeed, the net cash forecast for FY26 equates to as much as 65% of the current market cap, assuming all payments for Vigilant are received. With this context taken into consideration, we feel on balance that EV/EBITDA is a better guide to value for CSSG at this point than the P/E ratio, while also noting the ex-cash P/E ratio of below 5x.
Valuation based on organic growth prospects combined with cash
Following this through, we premise our basic valuation for CSSG on our core EBITDA
forecast, which is entirely driven by organic growth in the group’s existing businesses. Our forecast for the balance sheet includes the proceeds of the sale of Vigilant, with cash consideration expected to be received over the next approximately three years, bringing net cash at y/e F026E to £6.3m, prospectively.
With no directly comparable companies operating in the locksmith and security centre market, we base our valuation on a broad group of operators in the wider security markets (listed in Table 9, below) together with a basket of stocks representing the overall Support Services sector, discounted to allow for size disparities, given the small size of CSSG. Based on a CY25E EV/EBITDA multiple of 5.8x (6.4x peer group average discounted at 10%), we arrive at a current core valuation of 92p (24% upside); noting that, in practice, variables around the reinvestment of the Vigilant proceeds will be a dominant element in the valuation in the future (see p. 15 below).
On a final point, we note (a) the capacity for CSSG to operate with minimal net cash, and (b) its ability to borrow against freehold properties (£1.6m, as at June 2023, currently estimated to be ca.£2.0m)."
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