5 More Reasons to add Westminster Group #WSG to your Watchlist - Vox Markets
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5 More Reasons to add Westminster Group #WSG to your Watchlist

The content of this blog (or content associated with it) is not intended as investment. The writer of this blog holds a postition in the company featured. Please do your own research.


Westminster Group (WSG)
Share Price: 16.125p
Market Capitalisation: £18.25m

What Do They Do?

The Westminster Group is structured into two vertically integrated operating divisions:

Managed Services & Technology.

This is an update but you can read my previous blog on the Westminster Group by clicking here

Westminster Group released their Final Results for the Year ended 31st December 2016 and they revealed positive progress on a number of fronts.

5 More Reasons to add Westminster Group #WSG to your Watchlist

1. Strong recovery in West Africa Airport passenger numbers.

Our airport security operations in West Africa are experiencing strong recovery from the Ebola crisis that devastated the region and which finally came to an end in March 2016.

Whilst airline traffic has not yet fully recovered to pre-Ebola levels, we have seen steady growth with flight schedules increasing and new airlines such as KLM commencing services.

In 2016 our embarking passenger numbers grew by 52% to 97k (2015: 64k).

We anticipate the recovery towards pre-Ebola levels will continue and are encouraged to have seen a further increase of 27% in embarking passengers in Q1 2017 to 28k.

This together with the cost reduction measures we have taken has resulted in the operations once again making a worthwhile contribution.

In addition, cargo screening operations commenced in West Africa during 2016, following the cargo operations and security screening service achieving the coveted RA3 status.

The new cargo sheds currently have far greater capacity than current utilisation and the authorities are looking to build on this and create a regional hub for cargo services.”

 

2. Sovereign Ferries commenced initial operations in December 2016 and major capital expenditure now largely over.

“Over the past two years we have not only built the required infrastructure and upgraded the ferry terminals but have had to deal with a number of challenges including prolonged vessel repairs to our flagship vessel the Sierra Queen.

I am pleased to report therefore that this long-awaited service finally commenced with a soft start in mid-December 2016 and with formal services commencing in January 2017.

The current addressable ferry market is estimated to be worth around £4 million per annum in revenues. As we now move from a period of major capital expenditure to an operational phase, our focus for the business over the next 12 months is to grow our market share.

It is pleasing that we have already secured 3% of the market and we believe that, given the size of the captive market, the superior quality of our service, our vessel safety and the numerous local marketing initiatives we are pursuing we will continue to grow volumes to well beyond a 14% share (the level at which we anticipate the operation will be providing a positive contribution).

In addition, we are looking at new markets and revenue streams by the provision of new services such as a coastal taxi service around Freetown, for which we believe there is a strong and untapped demand together with new regional routes.”

Worth noting is the addressable market is worth £4m per annum, they currently have 3% of this, which is, £120,000 pa but intend to increase this to 14% or £560,000 pa and also intend to supplement this with coastal taxi services.

 

3. Financials

Total revenue was up by 31% to £4.4m (2015: £3.4m).

Revenues from the Managed Services Division increased £1.1m or 65% to £2.8m (2015: £1.7m).

Revenue from the Technology Division fell £100,000 or -5.9% to £1.6m but a strategic review seems to now be more focussed on the developing the, higher margin, Managed Service Division.

Due to increased revenue contribution from its higher margin Managed Services division, gross margin has improved by +13% to 71% leading to a gross profit rose +59% to £3.1m and adjusted EBITDA profit of £25k compared to a loss of £360k a year ago.

Their loss for the year was, the same as last year at £2m but quite a chunk of this was due to investment in the launch of the ferry service and the impact of the Ebola crisis.

All their £1.2m of debt was converted into equity including their convertible loan notes via Darwin Capital Limited and the agreement has been eliminated.

 

4. The Middle East Airport Project Opportunity

Westminster Group signed the MOU back in May 2016 and even though they’ve acknowledged it’s taking a long time, they also continue to say they’re making progress on it. This is worth a potential £35m revenue per year. So it’s truly transformational for the company.

They state, in their finals, that, “Substantial progress achieved towards finalising contract negotiations on the Middle East airport project opportunity”

And

“Substantial progress has been achieved towards closing this opportunity which is expected to result in annual revenues in excess of £35m.”

Also interesting to note is this paragraph:

“We are also in discussions with port operators on similar long term managed services solutions as well as continuing to look at managed services and recurring revenue opportunities beyond security.”

 

5. Charts

Below are two charts of Westminster Group. The first is a daily chart, where each candlestick represents one day of price action.

(click to enlarge)

As you can see the 13p level has proved a significant area for support and resistance on six previous occasions. It may retest this area but I would be surprised if it went below this area.

 

(click to enlarge)

The chart above is a weekly chart, meaning every candlestick represents a weeks worth of price action. Due to it being over a longer time frame, the trends forming can also be stronger.

There’s a bullish hammer candle plus the relative strenght index is at 51, positive proof of momentum. Another factor worth noting is that the MACD is also diverging and heading up towards the 0.

Westminster’s, higher margin, Managed Service Division continues to improve thanks, in part, to the reduced threat from Ebola and they also state they are seeing more opportunities for growth.

Even though, the loss for the year, at £2m was the same as last year, they state much of the capital outlay required to launch the Ferry, in December, is now largely over.  They are focussing their efforts on the higher potential in their Managed Service Division, rather than the Technology Division.

They are debt free and have eliminated the convertible loan note agreement with Darwin, which was providing a lot of the downward pressire on the share price.

Of course, the one contract that most investors want to see come to fruition, is the airport contract in the Middle East, worth £35m per year in revenue. Yes, it’s taking a long time but it’s still very much at the forefront of every update and mentioned in a positive light.

Even in their finals they state, “Substantial progress has been achieved towards closing this opportunity” and “Substantial progress achieved towards finalising contract negotiations on the Middle East airport project opportunity”.

They also point out that landing this contract isn’t guaranteed but given the optimistism expressed, I’d be highly surprised if the chances of success on this aren’t very high and so it’s seems more a question of when it happens, not if it happens.

The content of this blog (or content associated with it) is not intended as investment. The writer of this blog holds a postition in the company featured. Please do your own research.

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