Revisiting Securitas – buy, sell or hold?

Revisiting Securitas – buy, sell or hold?

It’s time to revisit Securitas again after a poor performance in 2019 and 2020.

I wrote the following in September 2019: «The share price reacted very negative on Q2 2019 – figures. I believe the company is well managed, has a stabile growth outlook due to increased urbanisation, promising acquisitions and necessary investments in security technology»

Post: Stabile growth outlook

Since last time the «Stabile growth outlook»-statement has proven wrong. Covid-19 has turned a lot of the company’s operations upside – down, but I would argue that some of the problems from previous quarters are still inherent and not solved.

Buy, sell or hold?

With the latest quarterly results behind us and expected weak quarters ahead does the company still make a good investment, and is it of a high enough quality to tick of the boxes in my newly updated investment strategy?

  • The EBIT-margin has been under pressure for some time
  • Cost saving programs has not materialised in improved margins
  • Organic growth has stalled
  • Future acquisitions are put on hold for the company which may reduce expected growth in the Electronic Security Solutions segment (with higher margins)
  • I have other companies on my watchlist that will steward my capital better

Conclusion: Sell

Current background:

  • Organic sales growth Q1 2020: 2% (7% in Q1 2019)
  • Decline due to Corona pandemic, with main effect from March. Therefore, expect a weak Q2. Rapid decline in European aviation business had the most impact, and I don’t expect the demand to pick up anytime shortly. Increased security services at hospitals and protection of facilities
  • Security solutions and electronic security grew by 10 % in the first quarter to represent 22 % of total Group sales.
  • No planned acquisitions
  • The operating margin in the first quarter was 3.8 % (4.8), a decline deriving from all business segments but the main impact from Security Services Europe.
  • The operating result, adjusted for changes in exchange rates, declined by 19 %. Earnings per share, before items affecting comparability, amounted to SEK 1.70 (2.12).

Q1 2020 Comments from the President and CEO:
Organic sales growth declined in all ­business segments due to the extra­ordinary situation of the ­corona pandemic which started to affect our business in the beginning of March and increasingly throughout the month. Our business segment Security Services Europe was most impacted, mainly driven by a rapid decline in activity in the aviation ­business.

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