RE: Good trading update - huge cash pile building nicely22 Jul 2024 11:04
Zeus Capital have summarised today as follows:
"Strong cash position for roll-up
This morning’s update from CSSG highlights positive trading in FY24E (year to
June) together with a healthy cash position following the payment earlier this
month of a £1.76m tranche in respect of the Vigilant disposal. CSSG has leading
market positions and is increasingly a national player in the fragmented UK
locksmiths market / security services / products. Having disposed of its former
low-margin manned guarding business for a good price, the company has a real
opportunity in our view to mop up the disaggregated UK market for its services,
which in turn will enhance earnings and the valuation as increased efficiencies flow through. With now 16 centres, CSSG has already built a strong platform
underpinned by efficient proprietary software. Fair value ignoring plans to translate cash into business (acquisition) opportunities is assessed at 92p (30% upside), but these plans do offer significant further upside beyond this in our view."
"Well-positioned and a healthy market: With sixteen centres and effective technology, CSSG can capitalise on a security market which shows inherent growth as crime has continued to rise and historic cuts to police budgets remain a drag on crime resolutions.
Well-placed to fulfil its core strategy: Sitting on £4m of net cash and with further payments on the way as highlighted above, we view CSSG as very well placed to exploit the consolidation opportunity inherent in the key market in which it operates, security centres for electronic security and locksmiths. It has acquired no fewer than seven sites since November 2022, and sees further M&A-based potential.
Valuation positives: With further Vigilant receipts expected, forecast net cash is rising as a proportion of market cap (FY2025E forecast net cash of £6.3m will represent around two thirds of current market cap by the time all the Vigilant receipts are in), our forecasts ignore the company’s earnings enhancing plans, although we do in practice expect to see further deals.
Fair value, ignoring these plans, is assessed at 92p (30% upside), but they do offer significant further upside beyond this in our view. See our note of May 16th for detailed commentary on the roll-out potential / potential synergies and an indicative valuation stretching to 119p."
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