Integration Of STANLEY And Automation Will Strengthen Operations In 2025

Key Takeaways

• Optimization and automation initiatives are expected to enhance net margins and drive earnings growth.
  
• Strategic integration and digital development focus will likely boost revenue, particularly in Technology and Solutions.
  
• Strategic divestments and restructuring, combined with regional operational challenges and market competition, may pressure Securitas' revenue growth and profitability.

Catalysts

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

• Securitas is implementing an optimization program in 2025 expected to generate annual savings of approximately SEK 200 million. This will likely enhance net margins and contribute to overall earnings growth.
  
• The successful integration of STANLEY and the subsequent focus on commercial development are anticipated to boost revenue growth, particularly in the Technology and Solutions sector.
  
• Securitas plans to increase automation and modernize platforms, enabling operations at a structurally lower cost base, which is likely to positively impact net margins and earnings.
  
• The ongoing transformation agenda focuses on developing digital capabilities and improving the value proposition, leading to higher-margin new sales and increased revenue.
  
• Continued improvements in working capital management and leveraging strong cash flow generation will support further debt reduction and improve financial stability, positively impacting net margins and earnings.

Securitas Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Securitas's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.2% today to 4.9% in 3 years time.
• Analysts expect earnings to reach SEK 8.8 billion (and earnings per share of SEK 15.43) by about March 2028, up from SEK 5.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK9.9 billion in earnings, and the most bearish expecting SEK7.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, down from 16.3x today. This future PE is lower than the current PE for the GB Commercial Services industry at 18.2x.
• 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 6.44%, as per the Simply Wall St company report.

Securitas Future Earnings Per Share Growth

Risks

• The termination of the aviation contract in North America and potential divestment of the aviation business in France could lead to a decrease in revenue streams, as these areas face challenges related to pricing and strategic fit.
  
• The hyperinflationary environment in Turkey previously contributed significantly to sales growth, and with the anticipated decline in price-driven growth, there could be pressure on future organic growth rates, affecting revenue.
  
• The optimization program in Europe focuses on restructuring or closing down nonperforming businesses, which could impact short-term revenue and profitability as the company undergoes transitions.
  
• High competition in the price-driven aviation security market and strategic adjustments could lead to lower market share or pricing pressures, thereby affecting revenue and net margins.
  
• The integration challenges faced in North America, particularly with system upgrades in the Pinkerton business, indicate potential operational risks that could impact earnings if not effectively managed.

Valuation

• The analysts have a consensus price target of SEK148.5 for Securitas based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK200.0, and the most bearish reporting a price target of just SEK88.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK180.9 billion, earnings will come to SEK8.8 billion, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 6.4%.
• Given the current share price of SEK146.65, the analyst price target of SEK148.5 is 1.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.