Slow start for optimistic G4S

Inflated earnings last year also had a knock on effect on debt ratios. Net debt came down in absolute terms during the period, but a decline in profits meant the net debt to adjusted cash profits ratio expanded to 2.7 times, from 2.4 at the end of last year and outside of the group’s 2.5 times target zone. This is due to fall back to within normal levels for the full year.

Management cited contract wins and strong retention as a source of momentum for the second half of the year, but also warned about the risks posed by Brexit. Depending on the terms of the exit, they said, leaving the EU could result in skills and workforce shortages, while uncertainty may lead to lower economic growth for both customers and competitors.

The group is now focused on technology and innovation as a means of achieving growth. To this end, it created a global cash division at the start of the year, consolidating its cash businesses into one unit rather than dividing them geographically as it had previously. Management believe the unified structure will encourage sharing of ideas across different countries, allowing improved innovation.

Analysts at Jefferies, however, see the integration as an opportunity to sell the cash solutions division, arguing it has become non-core having slipped from second to fourth place internationally in terms of market share. This would lead, they calculate, to potential proceeds in the region of £1.4bn to £1.7bn. The group turned down a £1.55bn offer from private equity group Charterhouse in 2013, and we understand management are still not interested in a sale.

Analyst Stifel is forecasting adjusted pre tax profit of £426m, giving EPS of 19.3p in 2018 (from £383m and 17.9p in 2017).