G4S sticks to its guns on strategy

Security group G4S’s (GFS) eventful year continued with the news that the security group had ‘firmly rejected’ a £1.55bn offer from private equity firm Charterhouse Capital Partners for its cash solutions business. G4S dismissed the approach as highly opportunistic and fundamentally undervaluing the unit, which G4S says is core to its strategic ambitions.

Just days after the unsolicited approach, G4S released an update on strategy. There was a reaffirmation of the group’s strong positions in the growing market for security services, which G4S believes should allow it to achieve organic growth of between 5 and 8 per cent a year. Underlying growth was 4.8 per cent in the first nine months of the year, with solid growth in emerging markets offsetting tough trading conditions in Europe and a hit from lower US federal government spending.

The latest instalments in the UK government contracts saga also continues to make headlines with the launch of a Serious Fraud Office (SFO) investigation into the electronic tagging contract. G4S has said it will co-operate fully with the investigation, and is co-operating with the wider review into key UK government contracts, which is due to report back in the coming weeks.

OK I can do a pick up

Charles Stanley says…

Accumulate. The shares fell slightly due to a weaker third-quarter revenue performance. Organic revenue growth was 4.8 per cent (for the nine months to end September), implying a third-quarter performance of 3.6 per cent. This compares with 6 per cent growth in the first quarter and 4.8 per cent for second quarter. The shares trade on a 2013 PE ratio of 15, which looks slightly elevated compared with peers. However, if G4S can deliver on its strategic ambitions, we believe that in the long-term, the share offers upside potential. The dividend yield is around 3.5 per cent and the payout should grow in line with earnings.

Panmure Gordon says…

Hold. Organic growth trends are broadly in line with that seen in the first half, with strong growth momentum seen in emerging markets. Trading in Europe remains difficult and lower spending in US also provides near-term pressure on the business. The balance sheet continues to deleverage with a further disposal made, while the restructuring of the UK & Ireland cash solutions business is also underway and should yield some benefits next year. We are maintaining our target price of 275p, which equates to 16 times 2014 earnings estimates. Expect adjusted EPS of 16.5p this year (20.8p in 2012).