Those punters looking for safety in numbers at services group CSG Holdings might have been a little rattled by an update that showed the acquisitive security & risk solutions division had taken strain during the year to end-March 2019. More seasoned small-cap pundits, however, might be less surprised — remembering how the old Command Holdings struggled to hold firm at the centre following its acquisition spree after listing in 2000.
Of course, CSG is of a better pedigree than Command. In its security arm, the company owns a number of brands, like 7Arrows Security and Hi-Tech Security in Mpumalanga; in its facility management arm, it owns cleaning companies like Afriboom and catering services through CSG Food Solutions; and it has a staffing and recruitment arm too.
It means CSG has decent cash flows from a diversified spread of services and it boasts strong(er) shareholders like PSG Alpha. It’s also tempting to give CSG some leeway. The security cluster results reflect the one-off set-up costs and initial operational losses of about R5.5m for its new (and important) centralised control room in Pretoria.
CSG says the Hi-Tech guarding division also realised "some losses" — but this business has been turned around for sustainable profitability. CSG’s bid to create a national network by setting up a centralised security structure also cost R3.8m, and there was a provision of R6m for bad debt at 7Arrows.
The bigger picture is that CSG is investing in a (bitter) sweet spot in the local economy, with demand for security services — and new safety technology — unlikely to taper off soon.
Admittedly, there are bigger established players in the sector, and consolidating smaller security operations is a serious challenge. But CSG is adamant its centralised control room already has a promising pipeline. This is expected to flow through only after 2020 … though it could be profitable by 2019.
Still, CSG’s current share price — down almost 50% in the past six months — reflects the market’s disappointment at the longer-than-expected time to turn a profit in the security cluster.
For investors able to muster enough courage to take a medium-term view, a ruling price of 60c offers an intriguing option on a company that is more than capable of playing an active role in further consolidating the fragmented SA security sector. Personally, I’d be a tad more reassured to see PSG Alpha playing a more active role. If there is an appetite for security services at PSG, now would be a perfect opportunity to fortify its holding in CSG. On the other hand, CSG, with a market capitalisation of less than R320m, might be in the sights of opportunistic asset hunters.
Astral plain
Chris Schutte, the CEO of poultry giant Astral Foods, is as plain spoken as they come. Anyone who has attended the Astral AGM will know Schutte is forthright on industry issues, but also passionate about finding operational efficiencies at the group.
With that in mind, one can detect considerable menace in an appendix to Astral’s latest trading statement, which reads: "Poor management of municipal infrastructure within the Lekwa (Standerton) municipality — particularly water reticulation and supply, which is crucial for a poultry processing plant — has resulted in unnecessary costs …"
There’s not exactly a solution pending either, as Astral warns that ongoing infrastructural failure is causing a dire situation in its operations in the area.
Interestingly, at the time of writing Astral’s share price had taken wing again, and is up nearly 17% over the past three months. The six months to end-March certainly won’t be pretty, with headline earnings set to range between 882c and 980c a share with higher maize prices gnawing at margins. But I’m sure there are a few punters banking on a fall in the maize price in the medium term, who are fully aware of just how quickly this lean and mean bird can feather its nest again.
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