Croma Security Solutions (LON:CSSG) is a security services provider operating in the UK. It seeks to differentiate itself from rivals through a strong ex-military ethos, reflecting the military backgrounds of its top management. In their own words, from the recent full year report: “Croma personnel have a market reputation for being smart, punctual, professional and courteous on a consistent basis which is in stark contrast to the average security guard.”.

The business operates through three divisions, as set out below.

Vigilant

Croma Vigilant provides manned guarding for assets and individuals and now employs over 750 security personnel throughout the UK. It is by far the company’s largest division, generating 82% of 2019 revenues, but is also relatively low margin, delivering an underlying operating margin (before unallocated central costs) of 4.9% in 2019.

Revenues have been climbing quite rapidly year-on-year, although an unusual level of high margin project work in 2018 caused revenues to shoot up that year and makes the prior year comparisons for 2019 look relatively poor, with revenues falling slightly and profit falling significantly as operating margins fell back towards more normal levels. Critically from the perspective of sustainable earnings, however, contracted business generated 88% of 2019 revenues, versus 82% in the prior year.

My revenue forecasts for Vigilant over the next two years assume reversion to the growth trend excluding the 2018 spurt.

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Security Systems

Croma Security Systems provides a full range of electronic security solutions from CCTV, high security locks to FastVein biometrics technology for high speed human identification. It is the smallest division, contributing just 8% of 2019 revenues, but has a relatively high underlying operating margin of 12.8% last year.

Revenues had been on a steadily rising trend, but fell back somewhat in 2019, mainly due to lower sales of the FastVein product. There are good reasons to expect growth to continue as locksmith premises are converted to market security systems too (more below), and this is reflected in my projections.

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Locksmiths

Croma Locksmiths comprises ten retail outlets in Southern England. They have been building this chain through acquisitions and it has been the fastest growing division in the Group. In 2019, it contributed 12% of total revenues at an underlying operating margin of 14.0%, the highest margin of all three divisions.

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