Morningstar | SECU B Updated Forecasts and Estimates from 01 Oct 2018
Guarding giant Securitas reported a solid first-half update, with organic revenue growth accelerating to 7%, following a slightly underwhelming performance in 2017. Operating margins also picked up slightly in the second quarter to 5%. Overall, the numbers were in line with our expectations for the full year, and as such we do not expect to make any material changes to our forecasts or to our SEK 152 fair value estimate. On this basis, we believe the shares are currently fairly valued.The pickup in revenue growth was led by North America, which generates around 40% of group revenue. Management highlighted electronic security as one of the major drivers of business growth in this region, which we take as further vindication of the company’s decision to acquire Diebold’s electronic security business in late 2015. The uptake of integrated security contracts, where technology is combined with traditional manned guarding, is key for Securitas in boosting top-line growth and increasing margins beyond the historical 5%-6% range. Electronic security contracts now comprise 20% of group sales, up from 18% at the end of 2017, a development we welcome as positive. We also believe the announced cost-savings program will be warmly received by investors, although details surrounding the quantum of expected cost savings were notable in their absence.
In the longer term, we believe that structural trends such as the proliferation of multinational companies and the continued outsourcing of noncore activities such as security and maintenance will continue to benefit the security services sector, and in particular large companies with high capabilities such as Securitas.
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.
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