Specialist security group Westminster recently published its 2007 results, which at first glance, appeared unexciting. Yet, based on orders won since the year-end and the company’s longer-term growth potential, the company deserves a second look.

Westminster’s core security and defence businesses revolve around the need for companies and governments to protect their assets with the most sophisticated security technology in the light of an increasing global security threat. These operations are supplemented by Westminster’s similar expertise in the supply and installation of fire and safety products.

From its Oxfordshire headquarters, where the group has an outdoor facility for showing off its various high-tech gadgets to potential clients, Westminster focuses on ‘niche products in niche markets’, targeting the Middle East, Africa, Asia and South America in particular.

2007 was auspicious in that it saw the group float on AIM in July, raising a net £2.5 million of new money, but the annual results were ‘nothing special’, chief executive Peter Fowler freely admits. From sales of £2.7 million, of which much arose from specialist security and safety systems for UK high-rise buildings, pre-tax losses were £424,000.

Industry veteran Fowler insists last year was about ‘generating a bow-wave of potential contracts, building international presence and further building our network of international agents’. This network provides the local knowledge, language and support staff and means Westminster enjoys low central costs. Agents are often security firms able to benefit from Westminster’s specialist product knowledge and industry contacts.

Westminster’s niche expertise ensures it is able to maintain good gross margins – last year witnessed an increase to 35 per cent (2006: 30 per cent). Higher-margin work comes from service and maintenance contracts, a key focus for management going forward, while Westminster sees lower margins from a third revenue stream, as an online retailer-distributor of simple security devices.

Since flotation, Westminster has seen a step-up in contract wins, with acceleration notable in the first quarter of 2008, during which £3.3 million of work was secured. Wins included a $4.7 million (£2.4 million) arrangement to secure Juba airport in the war-torn, but newly autonomous, region of Southern Sudan, as well as a $200,000 award from a petrochemical company in Kuwait to install perimeter fence protection.
These deals illustrate Westminster’s rich mix of blue-chip clients, ranging from companies such as Amazon.com, BP and BAE Systems to the Ministry of Defence, the US Air Force, the UN and even the Malaysian Police Force.

Looking forward, Fowler expects to secure at least a few wins from Westminster’s ‘quote bank’ – contracts quoted for but yet to be won – of ‘£300 million to £400 million’, topping up an order book already standing at a sizeable £4 million. Recent tenders include a contract to secure palaces in Oman worth £4 million and an £80 million deal from the new Iraqi government to provide x-ray scanning trucks, for which Westminster is on a shortlist of four.

Connections are crucial in this business and Westminster is very well associated from its board to its shareholders. Lieutenant Colonel Sir Malcolm Ross, a former Scots Guard and a former member of the Royal household, chairs the company, while another non-executive director is Sir Michael Pakenham, former ambassador to Poland.

Investors include Russian oligarch Alisher Usmanov, who speaks for 16.4 per cent of the shares. Fowler insists that this is a ‘strategic’ stake, since Usmanov’s chairmanship of the investment arm of Russian gas monopoly Gazprom could ‘lever us into Russian gas pipeline security’. Another backer is Vincent Tchenguiz, whose influential Consensus Group could help Westminster clinch contracts in developing countries.
Issued at 67.5p, shares in Westminster waned after it warned that contract timing issues would impact its 2007 figures. However, visibility for the current year is very high. House broker JM Finn forecasts a turnaround to profits of £650,000, giving 3.9p of earnings, ahead of £1.5 million and 7.8p for 2009, placing the shares on a very modest prospective price-to-earnings multiple of 6.7 for 2009. Growing fast, the lumpy nature
of sales at this stage in its development means that Westminster offers moderate risks, but the shares are well worth buying and locking away for the long term.

Westminster Group	AIM	£6.24m	44.50p	0.00p
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