Interview: Mortice unlocking global growth opportunities

Security and facilities management group Mortice is pinching contracts from under giant rivals' noses as it blazes a westward trail from its native India via successful acquisitions in Singapore and the UK that founder Major Manjit Rajain is keen to extend.

The company offers clients and investors potential for growth from an increasingly diverse range of services, while earnings are derived from a mix of a solid security business profitable from year-one, through to faster growth from its recent acquisitions and a state-of-the-art technology offering that includes door-to-door banking in India.

Executive chairman Rajain, who built up his people-managing skills with eight years in the Indian Army followed by another four dodging bullets as assistant chief of police in Kashmir, set up Mortice in 1995 to provide security guarding services under the brand of Peregrine Guarding.

Peregrine is now among the top five largest guarding companies in India with 11,000 locations in 29 states, with numerous major clients, including IBM, Intel and Microsoft.

In 2007 he decided to diversify the businesses and expand into facilities management (FM), branding this arm Tenon, as the building maintenance services in this sector had strong cross-overs with the security business, and as Rajain says making the group more of a 'people business' than ever with almost 50,000 staff worldwide.

In order to compete with existing FM firms in the market in India he fast-forwarded the management learning curve by poaching nine executives from the boards of his competitors and then looked to undercut rivals by offering an alternative model.

According to Rajain, once most large FM firms win a contract they outsource the individual services to different subcontractors, which he believes not only jeopardises the quality of the services provided but also hikes up the costs, so he has implemented a fairly unique 'full service' model. Both tactics proved successful as Tenon has risen to become the fourth largest FM firm in India.

In order to raise more funds Mortice listed the company on AIM in 2008 but as this was the peak of the financial crisis, he only managed to drum up £5m.

Since then, acquisitions have built mass, including Indian mechanical and engineering company Rotopower for £1m in 2009 and then 51% of Singaporean security company Frontline in November 2015 for £0.6m.

A key move was the purchase of UK property service company Office & General (O&G) in August 2015 for £6.5m.

Rajain’s Midas touch worked on the next two acquisitions with revenues increasing across the board. Frontline’s revenue increased from £2.93m (SGD5m) to £7.04m (SGD12m) and O&G’s increased from £33m to £45m since the takeover.

The two firms contributed $34m to the group’s total revenue for the year ending 31 March 2016 and in the six months to 30 September revenue grew 57% with the first full contributions of O&G and Frontline.

Bringing Frontline and O&G within the umbrella of a larger listed company has helped them make a step up in contract wins, with O&G securing a £55m contract with the University of Hertfordshire.

According to Rajain, by offering a model of keeping all services in-house rather than using subcontractors, O&G was not only able to almost double its margin from 6% to 11% but also offer the the university a 17% price cut.

Mortice has also recently secured its first security contract in the UK with Global Asset Management.

Rajain believes working interchangeably between the UK and India allows him to take home the efficiencies of the UK market as well as bring his can-do work ethic to the UK. One way he plans to operate in both regions is through the use of his new Soteria control and command centre in Delhi, which offers managed remote surveillance services.

Soteria's state-of-the-art technology will, for example, monitor litter clogging up Camden canal and if any gates of the lock have been left open, before firing off an automated call to notify the local London.

In India, Rajain is planning to use the same technology to offer door-to-door banking, wherein customers can have money delivered to their homes securely through monitored delivery drivers.

Analysts at house broker Finncap see great potential for what is thought was the first offering of its kind in Asia: “We believe this business could deliver high rates of growth in future years.”

When asked about his plans for the future Rajain wants to continue acquiring firms, to further increase the firm’s geographical reach as well as add to its service range.

He also plans to dilute his shareholding further as the company grows in size. After the acquisition of O&G Rajain reduced his shareholding from 84% to 77%.

According to the firm’s trading update in October 2016 the firm is on track to deliver full year revenues of at least $170m.

Finncap expects the group to be cash positive in 2016 in the absence of further acquisitions and potentially generate £2m of net cash flow.

Since floating eight years ago at 65p, the share price recently hit a high of 98p, where its forecast earnings of 5p for the full year give it a price/earnings ratio of just under 20 times.

FinnCap sees Mortice as well placed to capitalise from growth of the Indian economy, where it has strong market positions in two sectors; potential scope for market share increases in both security and FM and expansion into new verticals; as well as continuation of its successful record for acquisitions.