Rising Labor Costs And AI Will Undermine Guarding Services

Key Takeaways

• Overdependence on labor-intensive services and lagging technology growth undermine ability to adapt as automation and cyber priorities reshape industry demand.
  
• Rising labor costs, strict privacy laws, and intensifying competition threaten margins and restrict expansion of integrated, technology-driven solutions.
  
• Securitas is improving profitability and growth prospects by shifting to tech-driven solutions, optimizing contracts, reducing costs, and maintaining financial flexibility for future expansion.

Catalysts

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

• The widespread adoption of advanced technology and artificial intelligence in security is eroding the need for traditional, manpower-heavy services. Securitas still relies significantly on labor-intensive Guarding contracts, particularly in the underperforming Securitas Critical Infrastructure Services division, which threatens long-term revenue stability as clients accelerate their shift toward automated solutions.
  
• Securitas faces rising labor costs and potential staffing shortages due to an aging population and shrinking workforce across developed markets, undermining the company's ability to protect margins. Current margin improvements depend on terminating or renegotiating low-margin contracts, but wage inflation and labor supply constraints are likely to outpace these efforts and squeeze net margins in the medium to long term.
  
• Heightened privacy regulations and data protection laws in key markets are complicating the rollout of data-driven, technology-enabled security offerings, which have been pivotal to Securitas' margin expansion strategy. Regulatory headwinds are expected to slow the company's ability to scale integrated solutions, putting both future sales growth and margin uplift at risk.
  
• The commoditization of basic security services, intensified by consolidation among industry players and the growing presence of global technology corporations, is reducing Securitas' pricing power. This increased competition is likely to put persistent downward pressure on both revenues and net margins as clients increasingly view security as a low-differentiation, price-driven procurement.
  
• The ongoing pivot of corporate security budgets from physical to cyber domains is set to structurally reduce demand for many of Securitas' legacy offerings. While technology-enabled solutions are promoted as a growth area, the company's technology segment growth remains below target, raising concerns about Securitas' ability to sufficiently offset declines in core business lines and achieve sustainable earnings growth.

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 0.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.3% today to 4.4% in 3 years time.
• The bearish analysts expect earnings to reach SEK 7.3 billion (and earnings per share of SEK 12.8) by about July 2028, up from SEK 5.4 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 10.4x 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 19.3x.
• 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 5.92%, as per the Simply Wall St company report.

Securitas Future Earnings Per Share Growth

Risks

• Securitas is demonstrating successful execution of its strategy to shift from low-margin, labor-intensive contracts toward higher-margin technology and integrated solutions, which has already resulted in improved operating margins and could lead to sustained increases in both net margins and overall earnings.
  
• The company is actively pruning nonperforming contracts and renegotiating or terminating low-profit deals, particularly in Europe and Ibero-America, which-despite some temporary growth headwinds-should drive a healthier contract portfolio and expanded profitability over the medium to long term, supporting a stronger earnings profile.
  
• Securitas' investments in business optimization and transformation programs are tracking to plan, with substantial targeted cost savings expected to be realized over the next 12–18 months, which would bolster net margins and free cash flow.
  
• The successful integration and expansion of the technology and solutions business-enhanced by acquisitions like Stanley-position Securitas to capitalize on industry trends favoring digital, tech-driven services, leading to growth in recurring revenues and higher operating leverage that can benefit future revenue and earnings.
  
• The company's strong global footprint, robust balance sheet, reduced debt levels, and undrawn credit facilities underpin financial flexibility and support further value-accretive M&A, which, if pursued successfully, would mitigate risk and support both revenue and earnings growth over the long term.

Valuation

• The assumed bearish price target for Securitas is SEK112.0, 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 SEK180.0, and the most bearish reporting a price target of just SEK112.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK165.6 billion, earnings will come to SEK7.3 billion, and it would be trading on a PE ratio of 10.4x, assuming you use a discount rate of 5.9%.
• Given the current share price of SEK144.8, the bearish analyst price target of SEK112.0 is 29.3% 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.