PTSG has announced the acquisition of Trinity Fire and Security Systems along with a brief trading update noting that FY18 ended in line with management expectations. Trinity brings in a scale presence in electrical/ electronic systems, while its expertise complements PTSG’s existing Fire Solutions capabilities and expands the combined service offer. We have increased our earnings estimates by c 10% and, on this basis, the stock is trading on FY19 multiples of 11.3x P/E and 8.7x EV/EBITDA.
Trinity is a specialist in electrical/electronic fire (80% of revenue) and integrated security systems from a 10-office network offering broadly national coverage. The company’s testing and maintenance activities account for c 60% revenue from a contracted customer base with 80%+ renewal rates and across a range of commercial and public sector buildings. It also designs and installs these systems. Trinity’s c £40m annualised revenue run rate compares to c £15m for PTSG’s existing Fire Solutions division (including M&P, acquired in July), although it generates a lower EBITDA margin (of 5.5% versus PTSG’s 20%+ in this division). Part of the margin difference is sub-sector specific; the opportunity for PTSG is to bring the Trinity workflows onto its Clarity ERP system to improve operational efficiency and also to offer the combined customer list an integrated fire solution package over time.
PTSG is paying an initial £10.8m consideration equivalent to 4.9x run rate EBITDA (or £7.7m net of cash acquired and 3.5x on this basis) with a potential further £5m deferred depending on performance over the following two years. For the reasons outlined above, this is an important transaction on what we consider to be a typically keen PTSG acquisition multiple. Adjusting for cash acquired, this deal, together with Guardian Electrical Compliance (acquired in October), invests most of the c £19m net raised by PTSG via a placing in October. On our estimates, Trinity by itself enhances our last published earnings by c 10%. Overall, ie including the placing and Guardian effects, our EPS forecasts have increased by c 13% and c 16% for FY19 and FY20, respectively, since we initiated coverage on 8 October.
PTSG’s share price has started to rebuild from the lows seen in December and the Trinity deal should further support this momentum. The 2017–20 EPS CAGR is now 14.6% on our estimates giving a PEG of c 1.1x and resulting in FY20 valuation metrics of 10.5x on a P/E basis and 7.6x for EV/EBITDA.