One small-cap security company to watch

It's a dangerous world. That means there's big money to be made in security. Tom Bulford looks at one ambitious small-cap business that aims to be a major force in the industry.

We live in a dangerous world. Proof of this is found in the impressive array of security devices that are now commonplace. Metal detectors and x-ray scanners; anti-ram road blockers and bomb blast window film; intruder alarms and surveillance systems these are the ones we're most familiar with. But there is plenty more clever stuff besides.

Take the MicroSearch Heartbeat Detection System. When it is placed under a vehicle or container, this device can detect any human cargo by sensing the vibrations caused by a beating heart.

Then there is the Body Orifice Security Scanner, routinely used in American prisons. This piece of kit can "detect unwanted metallic contraband objects hidden within the body cavities of detainees and inmates".

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And there are automatic smoke systems that foil intruders by instantly filling a room full of harmless but dense smoke, preventing him or her from doing any mischief.

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These might sound like the inventions of James Bond's 'Q', but they are in fact all products offered by penny share company Westminster Group (LSE: WSG).

The 'James Bond technology' that could turn this penny share into an industry leader

Now let me be clear. This is not a recommendation to buy this share. I haven't done my full analysis, so I don't yet know whether the shares are good to buy.

But this is certainly an interesting sector and a very interesting company. It's one that you might want to look into further.

Security is big business. And last week when I went up to Westminster's HQ on the outskirts of Banbury, chief executive Peter Fowler left me in no doubt that he is intent upon building a major force in this expanding industry.

The key to Westminster's strategy is its ability to identify business opportunities around the world and to satisfy them by sourcing the very best products.

Fowler has spent seven years building a network of 80 agents in 45 countries who seek out the business opportunities.

And Westminster's strategy may be one that gives in an edge over other players in this industry. In effect it plays the role of a 'middle-man' between producers and customers.

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Compare this way of working with that of, for instance, security blinds maker Eruma (LSE: ERU) or safety film supplier Pentagon Protection (LSE: PPR).

These companies need to continually convince potential customers of the superiority of their own particular product. Westminster can simply choose whatever is best. For an example of how this works in practice, take the Nagaa Hammadi Dam across the River Nile.

Having spent £445m on this ambitious project, the Egyptians were worried that this barrier could be sabotaged by divers, or else damaged by the 60 tons of weed that floats down the river each day.

Westminster heard of the problem and came up with a neat solution. A security net was slung across the river comprising a steel wire mesh with an integral fibre-optic core woven into every strand. Any form of pressure upon the net can now immediately be detected and located.

Westminster International did not make the net itself. But it knew of a German manufacturer who did. So, by linking its knowledge of potential customers with that of a huge range of available security products, it was able to act as middle-man and make a tidy profit.

Westminster has also provided the security of the Juba International Airport in southern Sudan. This is a major project, including security fencing and perimeter detection systems, Under Vehicle Surveillance Systems, Automatic Number Plate Recognition, Vehicle Control Barriers, CCTV and Solar Powered Street Lighting.

Certain individuals are also prepared to pay very big sums for their safety. Westminster is providing bodyguards for a Middle Eastern family in a contract worth £540,000 annually. "Happily there seem to be plenty others willing to spend such sums on their protection," said Fowler.

Why I'll be keeping my eye on this ambitious little business

Last Westminster made sales of £7.9m and for this year broker Seymour Pierce is forecasting £10m, with a £0.9m pre-tax profit. But Fowler was keen to emphasise his aim to build a much larger business.

The infrastructure is largely in place, the business is recession-proof, and in any case is largely conducted outside the UK. At 30p, a share price that values the business at just £5m, the stock market does not seem to be giving Fowler any credit for his ambitions.

In part this depressed share price seems to be a forced sale of a major shareholder caught out by the Iceland crisis and the Madoff fraud. But there is also an element of uncertainty about any forecasts, which are dependent upon Westminster's success in turning its long list of possible business into firm contracts.

Some of these could be large enough to transform Westminster's prospects, but there is another problem.

Fowler gave an indication of the problem, saying: "Some rivals don't want to do business in places like Nigeria. They reckon it is too dangerous." But if you are selling security, I'd say you need to get out of the comfort zone.

Westminster is an intriguing proposition. The security business is huge and growing and yet fragmented an ideal environment in which to grow a company.

I shall be keeping my eye on this one, and on any other likely penny shares in this intriguing industry.

This article was written for Tom Bulford's twice-weekly email The Penny Sleuth

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.