Westminster Group surges on Sierra Leone ferry deal

Westminster Group has bagged a potentially lucrative 21-year contract to run a ferry service from Lungi Airport in Sierra Leone to the capital city Freetown. First flagged in August, it could be worth at least $300 million (£191 million) to the £18 million UK firm, but possibly much more. The City likes it, and the shares are up almost a third.

The airport, where Westminster already has the security contract, is sited on the opposite side of the Sierra Leone River to Freetown. Previously, the crossing has been treacherous and, on occasions, fatal. The alternative is an uncomfortable four-hour road trip.

Now, Westminster will supply a safe and reliable ferry service for airport transfers. That will include regular airport passengers, but also local airport workers, commuters, diplomats, healthcare officials and tourists. New terminal buildings are already built, and Westminster is currently paying to have them fitted out like airport lounges.

Westminster will pay the government an annual concession fee of 5% of total passenger revenue from year two of the contract. That covers the lease and management of the buildings. It also means there are very few fixed costs.

It's estimated the ferry will carry 3,500 passengers per month. Clearly, the recent Ebola outbreak has hit traffic in the region, but when that eventually clears volumes are tipped to "rise significantly." If Westminster then starts running our regional routes and coastline services, that $300 million revenue forecasts could prove conservative.

There are currently no earnings forecasts for Westminster. The broker is currently crunching the numbers, we're told. Revenue will be lower in the early years before escalating thereafter, but there will need to be some major rethinking on estimates. Last year, Westminster generated £7.4 million of revenue and lost £2 million, or £0.8 million on an adjusted basis. It lost almost £1 million in the first six months of 2014.

But management is clearly confident this deal is a game-changer. It says:

This ferry service is expected to share many of the attractive financial dynamics of the Managed Services business. It has the potential for a strong gross margin performance and has a rapid cash collection cycle. It is expected to generate a positive EBITDA contribution within 12 months of operation, even on the currently reduced passenger volumes, and its operational leverage should allow margins to improve as passenger volumes recover.

This contract is obviously proves that Westminster can put together significant deals in Africa. "It proves they're not a one-trick pony," said a source. And that could trigger other deals on the continent. A memorandum of understanding is already in place in East Africa, but the company is working on a number of deals in the Middle East, the Caribbean and the US.

Of course, the timing of these deals is difficult to pin down, and it's impossible to predict how long the Ebola outbreak will affect the region. Still, the ferry deal does put Westminster on the map, and certainly makes it one to watch.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.