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G4S brings down debt

Disposal of underperforming assets and good capital management is working to bring down debt
August 10, 2016

A fresh approach from Ashley Almanza, chief executive at G4S (GFS) is already starting to work wonders for the security group plagued by legacy issues. As part of its portfolio management programme, it has sold or is selling 63 businesses, with total annualised revenue of £1.5bn, but cash profits of just £8m. This has raised £288m so far - £32m has come in the six months to June this year, and as much as £350m is expected to be raised in the next 12-18 months.

IC TIP: Hold at 232.1p

New contracts worth £1.4bn were won in the first half, while a combination of productivity improvement and portfolio management helped to lift margins from 6.27 per cent to 6.45 per cent. One of the worries has been the high level of debt, leading to concerns that G4S could have to raise equity to address this. However, operating cash flow jumped 52 per cent to £293m as a result of improved working capital management. Net debt as a ratio of cash profits fell slightly from a multiple of 3.3 at December 2015 to 3.2 at the period end, and G4S has set a target to reduce this further in the next 18 months to 2.5 or lower.

Before these numbers, J.P. Morgan Cazenove was forecasting adjusted pre-tax profits for the year to December 2016 of £372m and EPS of 16.6p (from £327m and 14.7p in 2015).

 

G4S (GFS)
ORD PRICE:232.1pMARKET VALUE:£3.6bn
TOUCH:232-232.2p12-MONTH HIGH:274pLOW: 145p
DIVIDEND YIELD:4.1%PE RATIO:117
NET ASSET VALUE:47p*NET DEBT:238%

Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20153.42803.13.59
20163.531154.53.59
% change+3+44+45-

Ex-div: 1 Sep

Payment: 14 Oct

*Includes intangible assets of £2bn, or 131p a share