| Small & micro cap project / Activism insight

Napco Security Technologies (NASDAQ: NSSC): Signs of moat

by | Apr 9, 2020

Basics

M.Cap: $317 million

The company manufactures and sells security products and software. The company offers access control systems, door-locking products, intrusion and fire alarm systems, and video surveillance systems for commercial, industrial, residential, institutional and governmental applications.

Impact of coronavirus pandemic

The company’s stock price crashed by over 55% in the past two months due to the general fear of the economic outlook.

What we like/ Signs of moat

  • Negligible debt – $7.4m
  • Cash: $11.7m
  • Recurring revenue: In early 2017, the company launched a subscription-based product, StarLink Connect, which allows homeowners to use an app to control their security systems, lights and other devices. This system replaces the need for traditional phone lines with alarm installations. The company charges a monthly recurring fee for this service and the annualized run rate for recurring revenue is now $24 millionbased on the month of December 2019. 
  • Strong school security outlook: The company believes that the outlook for school security is strong and should add to the company’s growth in the future, as well as being driven by all of the funding legislation that many states have passed over the past year. The total of all the state funding legislation that has been passed is approximately $1 billion. The Federal government has also allocated $100 millionper year for the next ten years for school security. 
  • Note: Unlike Honeywell, Napco is not a household name. As per the company’s presentation, roughly 80% of the revenue was generated from commercial projects.

 

 

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