The Australian Security Industry is a large and growing market with a total Annual Industry revenue of over $6.2 billion. The industry has a consistent and stable growth of around 2.5-3.0%. The top three segments comprising of around 60% of the revenue are Mobile guards and Patrol (26%), Private Investigation (18%), and Security System Monitoring (16%).
Threat Protect Australia Limited (ASX: TPS) is focused on the Security monitoring subsystem, which has an addressable market of $992 million. The security monitoring is a high margin service, aided by technology and hence offers a scalable business landscape. However, this segment is highly fragmented with over 6,239 market participants and thus provides a significant consolidation opportunity.
TPS was established in 2006 and listed on the ASX in September 2015. TPS is technology agnostic, which makes it capable of monitoring all forms of hardware. The company caters to a wide range of customers from a small apartment to giant multinationals.
The company has the highest security accreditation possible and is segmented into two divisions,
- Monitored Security Systems.
- Guarding and Services.
Monitored Security systems: Threat Protect has two forms of connections (1) Direct: The product is sold directly to the end customer and managed by TPS. 100% of the revenue generated via direct connections goes to TPS and as per company reports around 12% of TPS revenue is from direct connections. (2) Reseller: The products are sold to the end customer by a reseller; the customer then uses the Threat Protect monitoring facility to monitor the connection. Around 30% of the revenue generated from this channel flows to TPS, approximately 88% of the total revenue is from Reseller connections. There are over 600 resellers, by acquiring the pools of customers managed by these 600 resellers, Threat Protect claims that it can achieve a 300% uplift in revenue on each connection.
The company has been able to achieve growth in sales by the acquisition of large independent security monitoring businesses and pools of connections managed by smaller resellers. TPS, as on the AGM date, had 84,000 connections across over 53,000 subscriptions through its three monitoring facilities in Western Australia, New South Wales, and South Australia, with an aggregate capacity of 195,000 connections.
Guarding and Services: This is a Manned security and consulting services to corporate clientele and forms an important part of Threat Protect’s integrated service offering. During FY2018, TCP became the first Australian affiliate of Certified Counter Terrorism Practitioners (CCTP). The award helps TPS to differentiate its service offering in the Australian Security market.
Growth Strategy: This company’s growth strategy is to focus on leveraging the largely fixed cost infrastructure and significant capacity of its existing security control room, through the acquisition of monitored security client bases across Australia.
1H2019 Results: The company reported a 34% rise in revenue in the 1H2019 at $9,288,000 vs. $6,952,000 in 1HFY2018. The company reported a jump in EBITDA from -$253,000 in 1HFY2018 to $660,000 in 1HFY2019. However, the company reported a Loss after tax of 1,580,000 vs. loss after tax of 1,102,000 in 1HFY2018.
The monitoring revenue for the half-year came in at $6.3 million compared to $3.9 million as at half year December 2017, mainly aided by the March 2018 acquisition of Security Alarm Monitoring Services Pty (SAMS). TPS continued to focus on its growth strategy, in August 2018, the company announced the acquisition of Monitored Security Systems Pty Ltd (MSS), the acquisition was fully funded by the company’s acquisition funding facility with Macquarie Bank Ltd.
Acquisition of Onwatch Pty: Sticking to its growth strategy, the company announced on 4th March 2019, the acquisition of Onwatch Pty for approximately $35 million. The acquisition is funded by a new $49 million funding package, which is a mix of debt and equity. Apart from the acquisition, the funding will be used for refinancing existing facility with Macquarie and provide future funding for acquisition growth.
The Onward acquisition is expected to add an additional recurring monitoring revenue of ~$12 million and synergy cost-saving opportunities in excess of $2 million as per the company’s announcement. The company also announced a further $5.4 million fundraising from shareholders through underwritten Rights Issue of $0.25 per share to aid transaction and integration costs and working capital. The shares were suspended (initially on 12 February with further extensions) from trading due to this announcement expectation, and the trading suspension was removed today, on 4th March 2019.
The stock has surged 29.41% past three months (as on 04 March 2019). The shares of TPS were trading up by 22.22% on ASX, (Closing price of A$0.220 as on Mon 04 March 2019)
Threat Protect Systems (ASX: TPS) has noted the 52-week low price of A$ 0.155 and the 52-week high price of A$0.240. The company has an EPS of -0.029 AUD.
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