Falling Manned Guarding Revenue Will Press Margins Though Tech Helps

Key Takeaways

• Structural declines in traditional guarding and slow tech adoption threaten long-term revenue, margin expansion, and recurring earnings growth.
  
• Rising labor and regulatory costs, intense competition, and stricter compliance requirements are eroding profitability and market share.
  
• Emphasis on technology, portfolio optimization, and disciplined financial management positions Securitas for higher recurring profitability and enhanced operational efficiency amid ongoing digital transformation.

Catalysts

Provides security services in North America, Europe, Latin America, Africa, the Middle East, Asia, and Australia.

• The accelerating adoption of advanced security technology, such as AI-driven surveillance and autonomous solutions, is reducing client reliance on traditional manned guarding. As clients shift their budgets toward automated platforms rather than human resources, Securitas could face structural declines in its largest business line, placing sustained downward pressure on both top-line revenue and operating margins.
  
• Tightening labor regulations and rising labor costs across developed markets will continue to erode Securitas's profitability, especially within its commoditized manned guarding contracts where price competition is fierce. The inability to fully pass higher costs to customers due to competitive pressures threatens net margins and future earnings growth.
  
• Securitas's transition to higher-margin electronic security and technology-enabled services is progressing slower than industry disruption requires, and the underperformance in Technology & Solutions growth-especially in North America-suggests margin expansion and recurring revenue targets may fall short, impacting group EBITDA and overall profit trajectory.
  
• Increasing competition from technology-first security entrants and specialized start-ups is rapidly shifting the competitive landscape, potentially eroding Securitas's market share among enterprise customers who now prioritize integrated, tech-centric security solutions. This risk to contract retention and renewal rates can result in stagnating or declining recurring revenues.
  
• Regulatory headwinds around data privacy and surveillance are intensifying, potentially restricting the scale and scope of both traditional and technology-based security solutions offered by Securitas. These regulatory shifts could curtail growth in new solution areas and result in compliance-related cost increases, further weighing on future earnings and net margins.

Securitas Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Securitas compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Securitas's revenue will decrease by 0.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.5% today to 4.7% in 3 years time.
• The bearish analysts expect earnings to reach SEK 7.4 billion (and earnings per share of SEK 13.0) by about August 2028, up from SEK 5.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, down from 15.3x today. This future PE is lower than the current PE for the GB Commercial Services industry at 19.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.83%, as per the Simply Wall St company report.

Securitas Future Earnings Per Share Growth

Risks

• Strong sequential organic growth and sustained improvements in operating margins across all business segments, particularly in North America and Europe, indicate a robust and scalable business model, which could support steady or rising revenues and margin expansion over the long term.
  
• The strategic shift toward higher-margin Technology & Solutions, coupled with the successful integration of acquisitions like STANLEY, positions Securitas to capture ongoing digital transformation trends and benefit from higher recurring revenues and profitability.
  
• Robust cash flow generation, effective working capital management, and a deleveraging balance sheet provide Securitas with financial flexibility and resilience to invest in growth opportunities and weather economic uncertainties, potentially supporting sustained earnings growth.
  
• Portfolio optimization-such as the exit of low-margin and non-strategic businesses like the government SCIS segment and focus on commercial and private sectors-enhances the company's margin profile and long-term value creation potential, possibly leading to a structurally higher net margin.
  
• Continued investments in digital platforms and automation are expected to drive operational efficiency and create further margin upside in the coming years, suggesting that both EBITDA margin and net income could improve as technology-driven cost savings compound.

Valuation

• The assumed bearish price target for Securitas is SEK110.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Securitas's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK190.0, and the most bearish reporting a price target of just SEK110.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK158.2 billion, earnings will come to SEK7.4 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 5.8%.
• Given the current share price of SEK148.6, the bearish analyst price target of SEK110.0 is 35.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.