SMALL CAP IDEA: Newmark’s Safetell ensures strategy success

“As higher gross margins and operational gearing are achieved, we can expect rapid earnings growth,” Allenby said in a 14-page research note.

New brandThe Safetell operation specializes in physical assets such as security doors, screens, safes and cash handling equipment, while the Grosvenor Technology business focuses on human capital management (HCM) and access control.

Simply put, Grosvenor products and systems help companies and organizations provide safe working environments. As we will see later, HCM is the key driver of Newmark’s growth program and its ‘five pillars’ strategy.

Looking deeper into the recent results announcement, two messages emerge. The first is that Newmark was able to handle the loss of a key customer – HR application group Ultimate Kronos Group (UKG) – without skipping a single step.

And at the same time, the figures show that Newmark’s strategy is gaining more and more ground. A company once synonymous with security hardware now generates a significant revenue base from the software and services it provides.

CEO Marie-Claire Dwek is optimistic about the contract loss at UKG: ‘Many of our investors were concerned about the loss of UKG, one of our first American customers.

‘Although UKG bought many products from us, the margins were low and they did not purchase any services. New customers we take on have healthier margins and also purchase services from us.’

Going forward, the plan is to grow the recurring revenue base (which rose 77% year-on-year to £2.3m in the first half) by attracting new customers, but also by capturing a greater share of the wallet from existing users of its products.

As mentioned above, Newmark’s Grosvenor operation will be crucial in this regard, and its strategy (those ‘pillars’ also mentioned above) can be summed up in just five words: continue, attach, push, move and diversify.

It will therefore ‘continue’ to seek and onboard new HCM partners; it will also ‘link’ services to all new customers and ‘push’ services to existing customers.

At the same time, the goal is to ‘displace’ others to get a fuller share of the wallet, and ‘diversify’ by being the go-to supplier of HCM products and services to major HR and HR providers business systems.

Grosvenor has expanded its offering to include GT Connect, GT Protect and the GT4-Lite device, with the aim of increasing customer engagement and the adoption products on offer.

GT Connect is a secure, cloud-based platform that enables real-time connectivity, remote diagnostics and comprehensive data management by integrating multiple devices into a single network.

GT Protect offers a robust hardware warranty service, ensuring fast response times, next-day device replacement and priority technical support. This complements Grosvenor’s strategy of progressive device updates, in line with subscription models for third-party HCM software, introducing a per-employee-per-month revenue framework.

Known for its competitive pricing and flexibility, the GT4-Lite terminal targets a broad market spectrum, allowing Grosvenor to challenge cheaper rivals while supporting remote software upgrades.

As part of its comprehensive offering, it also offers customers a lifetime hardware warranty, secure cloud access and 24-hour technical support through GT Services.

This business model shift to revenue from cloud-based and hardware-based software and services “significantly expands Grosvenor’s addressable market and scope for recurring revenue,” broker Allenby said.

In all this, Safetell is forgotten, which Allenby says has been ‘revived’ by new management after several years of declining sales.

This has involved a renewal of product lines while shifting focus to the automotive door maintenance management sector, which is significantly larger than Newmark’s historic markets.

This has resulted in a return to growth over the past fiscal year, with Safetell entering 2024 with a growing pipeline of prospects, Allenby noted.

As the strategy clearly begins to gain commercial traction, what can we expect in 2024 and beyond?

“We are halfway through the second half of our fiscal year and it has been a good period so far with healthy pipelines in all areas of the business: HCM, access control and Safetell,” says CEO Dwek.

Newmark has signed three tier one clients, mainly in the US, which will help support growth in the second half of the financial year.

Longer term, by focusing on growing the recurring revenue base and aggressively targeting a larger portion of the portfolio, Newmark is positioned as a recovery strategy. Revenues are rising and profit margins are increasing, “especially in software services, which gives us more ‘regular’ customers,” says CEO Dwek.

“We also have a great reputation,” she adds. ‘We are a niche company, but we are one of the most important players and we are growing year after year. We’ve had a tough few years post-Covid, we returned to profitability last year and we look to be very profitable (as of now).’

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