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.

Securitas – stabile growth outlook

I bought my first shares in Securitas at 147 SEK on the 10 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.

The company was established back in 1934 as Hälsingborgs Nattvakt and has since then grown to become a world leader in security services. Investment AB Latour entered as owners of the company in 1985 and under their ownership the company developed into a multinational corporation. The market for Securitas’ services benefits from the megatrend of urbanisation which support the companies growth outlook. Securitas is investing heavily in security technology and are making acquisitions in order to meet the rapid pace of transition to security solutions that combine on-site and mobile guarding with various forms of electronic security.

Megatrend: Urbanisation. Rapid urbanisation will most likely have the greatest impact on how and where humans live. People leave the countryside and migrate to cities. Combining urbanisation with increasing demand for improved standard of living for emerging economies and an increase in the world’s population results in megacities and the need to rethink how cities are built. Securitas will benefit from this megatrend since there are higher crime rates in cities than in rural areas.

Dividend: The company has increased its dividend the past four years and their dividend policy is to distribute 50-60 % of annual net income to its shareholders. Historically, the company has paid a steady dividend and has also distributed shares in Loomis and Assa Abloy.

  • Current dividend yield: 3.0 %
  • Dividend payout ratio: ~50
  • Return on equity: ~17 %
  • Equity ratio: ~29%
  • Net debt / EBITDA: 3.0
Securitas security Las Vegas