Morningstar | 3Q Brings Improvement for Securitas
Security giant Securitas delivered an upbeat third-quarter report, with organic sales growth of 6% in the third quarter and year to date, almost bang in line with our expectations. Operating margins were also up strongly, rising to 5.6% in the quarter. Year to date, the operating margin stands at 5.1%, close to our 5.2% expectation for the full year, which would be a solid 20-basis-point improvement on the 5% level delivered for the past five years. We do not expect to make any changes to our near-term forecasts on the back of these numbers, and we retain our no-moat rating. Our fair value estimate stands at SEK 152, almost exactly where the current share price sits.Geographically, North America and Ibero-America, which combined generate 54% of group revenue, saw margin improvement over the course of the period, while Europe, Securitas' largest single region at 44% of revenue, saw a slight decline. This should come as no surprise, given the high levels of labour inflation observed in areas such as the U.K. across the business services sector. We are impressed, however, with the company’s ability to offset cost inflation with price increases in other regions.
In the longer term, the key for Securitas is in increasing the take-up of integrated contracts, where technology is combined with traditional manned guarding. At first-half 2018, integrated contracts stood at just over 18% of total contracts. Integrated contracts not only carry margins of around double those of traditional manned guarding, but also extend the lives of contracts from one year to five years on average. We continue to monitor the company’s progress on this front.
Securitas is engaged in integrated security solutions. Co.'s main service offering categories are specialized guarding, mobile security services, monitoring, technical solutions and consulting and investigation services. Co. operates in 52 countries throughout North America, Europe, Latin America, the Middle East, Asia and Africa. Co. is organized into three business segments: Security Services North America, Security Services Europe and Security Services Ibero-America. In addition to the three business segments, Co. conducts guarding operations in the Middle East, Asia and Africa.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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