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Westminster Group: is this security services group ready for a comeback?

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Some recent order announcements combined with a share placement have prompted a modest rally in the shares of security services provider Westminster Group (LON:WSG), which looks like it’s starting to emerge from the pandemic.

Westminster Group’s chief business is providing security services at airports, ports and other public places so the Covid-19 lockdowns have had a strong impact on WSG’s bottom line, its balance sheet and consequently its share price. Pre pandemic, Westminster Group was trading at above 10 pence, it then plunged to a low of 3.80 pence and is now up at 5.50 pence, giving a large degree of upside.

But revenues were down only 9% year-on-year in 2020 and despite the fall in orders Westminster Group experienced at the height of the pandemic, the company did manage to narrow its pre-tax loss by 43% and said it expected that what was lost in 2020 as a result of delays will benefit 2021.

In its outlook for this year, Westminster Gorp was fairly upbeat, noting that it has “healthy” enquiry orders and that it expected to return to pre-Covid revenue growth levels. This would be boosted, it said, by the start of work on a pandemic-delayed order from the Palace of Westminster.

Can Westminster Group start to turn a profit?

While this looks promising, this is still a company that makes a loss both at the bottom line (0.45 pence per share in 2020) and at the operating level. In 2020, it reported an EBITDA loss of £0.52 million, widening from a profit of £0.01 million in 2019.

There has also been some noise in the markets about its cash burn – net current assets were down to £5.354 million at the end of December compared to £5.793 million at the end of June last year – although the company entered 2021 debt free thanks chiefly to a December 2020 share placement.

Westminster Group tapped the markets again last week, raising £2.5 million to put it “in a stronger position for the next stage of its development”. This gives it funds to fulfil recently secured orders and, it said, the possibility to deliver on a “strong pipeline of near-term potential major projects”.

Steady stream of new orders

Already on its site, there’s a steady stream of news about sizeable orders, not least of which is a 20-year managed services multi-million dollar contract covering five airports in the Democratic Republic of Congo.

In terms of people, the company is run by some seasoned veterans of the security services industry. Another good sign is that there is a reasonable amount of director ownership and, according to Westminster Group, the recent share placement was mostly taken up by institutional investors.

Westminster Group still has some work to do though to make a more convincing investment case even though these orders are promising, as is the company’s perspective on the pipeline of new projects, assuming that it wins these orders.

We, however, would like to see Westminster Group turn a profit on the existing projects, whose working capital has had to be funded by this extra share placement (and let’s not forget that placements are dilutive), and see some more orders secured from this potential pipeline it talks about.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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