4 Reasons to add Westminster Group #WSG to your Watchlist

Back

4 Reasons to add Westminster Group #WSG to your Watchlist

The content of this blog or podcast (or content associated with it) is not intended as investment advice. Please do you own research.

Westminster Group #WSG
Share Price: 12.25p
Market Cap: £12m

What do they do?
Westminster Group are an AIM listed supplier of managed services and technology based security solutions to governments and government agencies, non-governmental organisations (NGO’s) and blue chip commercial organisations worldwide.

Westminster Group Consists of 2 Divisions:

– Managed Services
– Technology

The Managed Services division is the core focus of the group, it consists of the following 4 operations:

 


Ferry Operation

 

 


Westminster Facilities Management

 

 


Westminster Aviation Security Services

 

 


Longmoor Security

 

4 Reasons to add Westminster Group #WSG to your Watchlist

1. Improving Business

In a trading update on 23rd February 2017, Westminster stated, “the Group is expecting to report a much improved financial performance for the year ending 31 December 2016 with revenue growth up 22% year on year and expected break even at the adjusted EBITDA level.”

In their last year’s final results for the 12 months to 31 December 2015, their total revenue was £3.4m. So a 22% increased would be, £4.15m. More importantly they are expected to breakeven at the ajusted EBITDA level.

 

Westminster Aviation Security Services


“The Company’s West African airport operations are seeing steady growth in embarking passenger numbers as the recovery from the Ebola crisis continues.

In January 2017 (a seasonally strong month), the airport operation recorded its second highest number of embarking passengers since the Company commenced operations there in 2012, showing a 40% increase on January 2016 and following on from a 35% increase year on year in December 2016 (albeit December 2015 and January 2016 were still affected by the tail end of Ebola). If this growth pattern continues it will potentially benefit both the Company’s airport and ferry operations.”

 

The Ferry Operations


Sovereign Ferries commenced operations utilising its Sierra Princess vessel in December 2016.

In a trading update on 23rd February 2017 they stated:

“Passenger numbers to date are in line with management expectations following a planned soft start in December designed to trial services and timetables.

The service is now operating 68 crossings a week to coincide with flight schedules and at full capacity is capable of carrying around 9,000 passengers a month. With total airport passenger numbers passing through the airport increasing, and currently averaging around 15,000 per month, there is a strong and captive market for a safe, reliable and professionally run ferry operation.

The current service is focussed on the Sierra Princess which is operationally proving successful and which will be joined by other vessels as demand and operations dictate. The larger Sierra Queen will be brought into service in due course for longer distance regional routes currently being planned.”

Westminster have experienced their fair shair of issues over the last 2 years, which to be fair was not entirely their fault. The Ebola crisis had a big negative effect on the business but this seems to be, largely, behind them and now both divisions are improving and they seem confident this growth is set to continue.

Also worth noting is that in their interim results they stated that their, “Average gross margin improved to 74%”.

 

2. Potentially, Transformational New Clients

Westminster have 2 contracts in the pipeline that could be transformative for the company:

1. Middle East

In May 2016 Westminster received a Letter of Intent from a Middle East Airport Authority relating to a long term airport security contract.

They stated that this contract, “is expected to have annual revenues in excess of £35m, together with an ancillary large scale project for the same client as well as a significant border project in the same region.”

Granted this letter of intent was signed nearly a year ago and the company admit, “Contracts of this size and nature are not only time-consuming but involve complex negotiations with numerous commercial and political bodies. With the major airport contract discussions largely completed, the Company has been actively preparing the required support structures and infrastructure necessary to deliver the projects, including organising a complex supply chain.”

Even though this contract is taking a long time to finalise, if it lands, if will be transformational for the company. Last year their total revenue was £3.5m, the revenue from this one contract alone will increase this more than 10 fold.

2. Asia

Aside from this, on 12th October 2015 they announced they, “signed a Memorandum of Understanding with a government owned airport authority for the provision of long term (up to 25 years) security and safety services at a number of the country’s airports”, in Asia.

Again this contract is taking a long time to finalise and there’s no guideance as to the potential revenue it could generate but Westminster acknowledge the delays and continue to update the market regarding their progress, so one can only assume they are ongoing.

These contracts are not only important to Westminster in so far as revenues are concerned but it broadens their geograpahical footprint to the Middle East and Asia and therefore reduce their reliance on Africa.

 

3. The End of the Convertible Loan Notes?

On 22nd November 2016, Westminster announced that it has signed agreements for the issuance of £1.2m of Convertible Unsecured Loan Notes, via Darwin, to support expansion programs with additional financial resources.

It’s no secret that convertible loan note can exert downward pressure on a companies share price as the conversion price is “90% of the arithmetic average of the five lowest daily volume weighted average share price per Ordinary Share out of the ten trading days prior to conversion”.

So essentially whatever the share price is, there’s a big seller, consistently offloading the shares 10% below the market price.

Having said that the funds are being used to expand the business:

“The size and complexity of these projects, the Middle East airport project in particular, has necessitated extensive pre contract expenditure around professional and preparation costs including the establishment of an office in mainland Europe. The proceeds of the CULN issue are to support working capital requirements around this, the anticipated initial post contract spend as well as for general corporate purposes. The Company, supported by its institutional investors, has determined that funding by way of loan notes at this time is the most beneficial and potentially less dilutive means of financing such expenditure.”

As of their last conversion on 28th February 2017, Westminster had drawndown around £700,000 of these convertible loan notes, so there’s around £500,000 outstanding.

The cessation of convertible loan note agreements tends to have a very positive impact on a companies share price.

There’s no way of telling how much more cash Westminster will need to finalise their contracts in Asia and the middle east but assuming they don’t enter into another agreement this current one could be over within the next 3 – 6 months.

If they do enter into an convertible loan note agreement, then share price could fall further.

 

4. Share Price

(click to enlarge)

The share price recently hit 10p, a level not seen since June 2016.

Currently the share price is 12.25p, which interestingly enough was where it closed on 26th May 2016, the day Westminster Group announced their Middle East Letter of Intent (LOI).

Off the back of this announcement the share price rose to 32.50p, over the next four months. It pulled back, then tried, unsuccessfully, again to break this 32.50p level in October. Since then it has fallen into a downtrend, to where it is today.

There are two reasons for this fall:

1. The length of time it’s taken to finalise this Middle Eastern & Asian contracts.

2. The convertible loan notes.

However, these reasons do offer a decent entry level.

As I mentioned above, the share price is now at the level it was at when Westminster Group first announced the LOI. This potential hasn’t disappeared and it’s why I’ve taken advantage of it. There still maybe some volatility ahead but if you have the patience and stomach to weather the volatility, I believe it will pay off in the medium term, especially if the middle eastern contract materialises.

One way I deal with volatility is to adopt a, “scale in”, method to purchase shares.

As always, I will allocate no more the 10% of my overall porfolio’s worth to one particular investment. Then I will split this value into 3 indentical sized tranches. I will buy my first tranche and place 2 further limit orders, 10% below each other.

Here’s an example and for the purposes of simplicitiy lets work in round figures. Let’s say your overall portfolio value is worth £30,000. Firstly you allocate 10% or £3,000 to this one investment.

You then break this £3,000 into 3 equal tranches.

The first investment will be worth £1,000 at current levels.

In regards to Westminster, I bought my first tranche at 10.4p. This means my next limit order will be placed at 9.36p and my next will be at 8.5p.

As long as Westminsters story hasn’t changed, this method means, firstly, I will not over expose myself to the company and secondly, it will allow me to pick up shares at a better price than I initally achieved, bringing my average down.

In short, if I thought the shares were good value at 10.4p then surely, they must be excellent value at 8.5p.

What if the share price rises after my first buy?

This is not a bad thing, as I’m making money on my investment but I will also look to invest the 2nd and 3rd tranches on pullbacks in the share price.

If Westminster land the deals in Asia and the Middle East, their revenue will be around £40m for the following year. If they can achieve a net profit margin of 10% that’s £4m profit. On a P/E of 10 that would suggest a market cap of £40m (currently £12m). Given that their gross margin was stated as 74% in their interims, this net margin seems quite achievable.

These transformational deals are taking a long time to materialise, which is to be expected when dealing with government departments so it maybe worth trying to value the company without these deals.

This is difficult because a companies share price is largely a reflection of future potential, not just past performance. Having said that Westminster announced in a trading update on 23rd February, that, “the Group is expecting to report a much improved financial performance for the year ending 31 December 2016 with revenue growth up 22% year on year and expected break even at the adjusted EBITDA level”.

In their outlook statement they also write, that in 2016, they have “signed three more Memoranda of Understanding, bringing the total number of signed airport security MoU’s the Company is working on to seven which collectively serve over 10 million embarking passengers annually.”

Also they have, “now agreed overall terms with a European security group and we are in the process of setting up a Joint Venture company in Europe, opening up new project opportunities in different parts the world.”

And, Added impetus has come in September 2016 from the United Nations Security Council following a British Government initiative. With this, and the progress the business is making on numerous fronts, it gives the Board and me confidence in our transformational growth prospects.”

So it’s clear to see that Westminster Group are not only growing their current revenues but have a large pipeline of exciting potential prosepcts, which if they materialise, should see a significant re-rate in their share price.

In the meantime, the progression towards profitability will mean there’s less chance they will need to rely on, share price destructive instruments such as, convertible loan notes.

To add Westminster Group #WSG to your watchlist click here.

 

The content of this blog or podcast (or content associated with it) is not intended as investment advice. Please do you own research.

my-previous-blog-posts


To subscribe to my blog click here

 

3 Risky Micro-Caps with Multi-Bagger Potential

Our, “£1,000 to £100,000 in 50 Trades of Less” Experiment

Our Next Expected Trade in our, “£1,000 to £100,000 in 50 Trades or Less” Experiment

angs-small
To read my blog post on Angus Energy #ANGS click here

 

ars-small
To read my blog post on Asiamet Resources #ARS click here

 

boom-small
To read my blog post on #audioBoom #BOOM click here

To read my updated blog on audioBoom including the iHeartMedia agreement click here

2 Overlooked Companies, That Could Be About to Release Signficant News

 

evr-holdings-logo-small
To read my blog post on EVR Holdings #EVRH click here

To read my follow up article on #EVR Holdings click here

3 reasons to put Harvest Minerals on your Watchlist

 

To read my blog on Horizonte Minerals click here

 

koov-small
To read my blog post on Koovs #KOOV click here

 

5 Reasons to Put Lombard Risk Management #LRM to your Watchlist

 


To read my blog post on Motif Bio click here

 

pvr-small
To read my blog post on Providence Resources #PVR click here

3 Reasons to put Providence Resources #PVR on your Watchlist [UPDATE]

 

5 Reasons to put Savannah Petroeum #SAVP on your Watchlist

 

tlou-small
To read my blog post on #TLOU Energy click here

To read, “5 Reasons I bought more Shares in Tlou Energy This Week” click here

11 Quick Reasons to add Tlou Energy #TLOU to your Watchlist

 

5 Reasons to put The People’s Operator #TPOP on your Watchlist

 

upl-small
To read my blog post on Upland Resources #UPL click here

To read my follow up article on Upland Resources: The Sensible and Sexy Asset Strategy, click here

2 Overlooked Companies, That Could Be About to Release Signficant News

 

3 reasons to add Versarien to your Watchlist

 

yolo-small
To read my blog post on Yolo Leisure and Technology #YOLO click here
To read my blog post on Yolo’s Electric Jukebox Investment click here

Vox App Image
How to get company RNS releases sent straight to the front screen of your smartphone, as soon as they release them (for free) in 3 easy steps.

1. Download the Vox Markets app by clicking here (for either iPhone or Android).
2. Search for a company you want to receive the RNS’s from.
3. Click, “Follow” on that company’s page.

If you find this podcast useful please could you give it a 5 star rating and review on iTunes by clicking here and I’ll return the favour by giving you a mention on the podcast!

The content of this podcast (or content associated with it) is not intended as investment advice and people featured may hold positions in the companies they talk about. Please do you own research.