Westminster Group – the whole game is on the change

Yesterday’s multi-million-dollar contract could be a game-changer for Westminster Group, writes Mark Watson-Mitchell.

That damned coronavirus has proved to be not only a killer of large swathes of the population, but it has also been a massive anchor wrapped around the throat of businesses globally.

Transactions were slowed, and in some cases frozen, with commitments not easy to be confirmed, due to understandable and hesitant caution.

So, as we start to ease back very slowly into normality (what is that?) investors have to pore very closely over corporate announcements to identify the proximity of benefits to come.

Going through various daily statements, I noticed one from a company that I profiled three months ago and which has gone nowhere since then, until yesterday.

Read all about it

I refer to the latest shareholder news from the Westminster Group (LON:WSG). 

The company is a specialist security and services group operating worldwide via an extensive international network of agents and offices in over 50 countries.

The group’s principal activity is the design, supply and ongoing support of advanced technology security solutions.

Those solutions encompass a wide range of surveillance, detection (including Fever Detection), tracking and interception technologies.

It is also involved in the provision of long-term managed services contracts, such as the running and management of complete security services and solutions in airports, ports and other such facilities, together with the provision of manpower, consultancy and training services. 

The majority of its customer base comprises governments and government agencies, non-governmental organisations and blue-chip commercial organisations.

Mega contract is a massive pointer of better times ahead

Yesterday Peter Fowler, the group’s Chief Executive, announced that it had been awarded a long-term managed services contract to provide security services to five airports in the Democratic Republic of the Congo, Central Africa.

This latest multi-million-dollar per annum managed services contract was secured after many months of negotiation and delays caused by COVID travel restrictions. The contract, which is for an initial period of 20 years, with a five-year renewal thereafter, is to provide comprehensive ground security operations, initially at four international airports and one national airport in the DRC.

Revenues will be driven by embarking passenger numbers using the airports and funded by a per passenger fee denominated in US dollars, collected through the ticketing system and payable directly to Westminster by the airlines or a suitable collection agency such as the International Air Transport Association. 

Although air travel is still virus impacted, passenger numbers are estimated to be currently around 50% of normal levels, while full recovery is not expected until 2023.

The contract in the first twelve months of operation is expected to generate revenues over $6m. As passenger numbers recover to normal levels, we should then see proportional growth in revenues and margins. 

Further contracts possible

There could also be an opportunity under the contract for further revenues from cargo screening operations.

Analyst Andrew Simms at the group’s broker, Arden Partners, pinpointed this company’s attributes and potential in his note way back in early March this year. 

It was when commenting upon the group progressing its business development that he stated “Restrictions delayed the formation of Westminster Arabia but with this now complete, a number of potential contracts could follow through 2021 and in to 2022. Additionally, the group has recently entered into an exclusive agreement to launch Covid testing with a partner company which could lead to further business developments.”

Well how right was he?

Less than three months later, together with fellow analyst Philip Modu, he has been impressed enough at this new contract and its potential that they have kept to their current year (to end-December) estimate of £16.7m revenues generating £1.5m of adjusted pre-tax profits, worth 0.5p per share in earnings.

Their joint view for next year is an estimated turnover of £23.7m and a massive increase in profits to £5.3m, giving some 1.8p per share in earnings.

He considers that current and prospective capital spend will still leave the group with £2.3m in cash at the end of this year and then £6.5m at end-2022.

The market is suddenly awake

Yesterday’s news was like an explosion.

The potential in this little ‘penny stock’ has now been identified – weeks after Master Investor readers were alerted and months after Andrew Simms’ comments on behalf of Arden Partners clients.

The average dealing volume in the shares has been around 250,000 for some while, despite sudden flurries up to 750,000 dealt in one day.

However, yesterday the dealings were a massive 83m shares traded, closing at 5.75p, up 40% on the day.

My View

There will be hiccups along the way, with big swings in either direction, but I consider that these shares are now heading up to scale the 10p barrier. 

Arden has a ‘buy’ note out on the company, looking for 19p as their price objective.

(Profile 17.03.21 @ 4.2p set a Target Price of 6p*)