Coverage from Argonaunt on this one as per below. Looks a no brainer with more acquisition announcements to come.
Mobile app sounds the bomb as well!
Tuesday, 15 September 2015
Stock
Threat Protect (TPS)
Recommendation
SPEC BUY
Current Price
$0.023
Valuation
$0.033
Securing the future – Initiation
Analyst | Ian Christie
Quick Read
We initiate coverage of Threat Protect with a Speculative Buy recommendation and a valuation of $0.033. The recent $5.5m capital raise provides the funding to complete the acquisition of two businesses that will double Threat Protect’s monitored line client base. With significant additional capacity and operating leverage at the A1-graded control room, we expect the well-articulated roll-up strategy to result in a growing client base and strongly improving margins and earnings. There is upside to our base case valuation as this strategy unfolds.
View | Positive
Security system monitoring a growing segment: The $6.3b security industry in Australia is mature, competitive, highly fragmented, and underpinned by an increasingly security conscious society. However, within the industry we expect an escalating trend away from labour intensive industry segments (guards and patrols) toward technology intensive segments like security system monitoring.
Significant operating leverage: Threat Protect, with its existing A1-graded control room, is poised to take advantage of the technology trend and industry consolidation via a targeted acquisitive growth strategy. After completion of two pending acquisitions which are under option, Threat Protect will have ~20,000 monitored lines, still well below the control room’s ~100,000 line capacity. As new clients add little to costs, our modelling indicates significant potential margin and earnings expansion beyond the breakeven level of ~10,000 lines.
Mobile App a differentiator: Threat Protect has developed a Personal Duress App for mobile devices that will allow the user to activate a GPS-tracked duress alarm from anywhere in the world on any mobile network. A mobile security option integrated with the control room, and which could potentially be bundled with other security or home technology products, may prove an attractive differentiator in a competitive industry.
Experience: The founders of the business have considerable industry knowledge and expertise. In our view, their energy and drive to execute the acquisition strategy is critical to Threat Protect’s future success. They have the incentive to do so having retained a meaningful stake post the capital raise.
Recommendation
With significant additional capacity and operating leverage we expect the roll-up strategy to result in a growing client base and strongly improving margins and earnings over time. There is upside to our base case valuation as this strategy unfolds and we initiate with a Speculative Buy recommendation.
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