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G4S looks to unload cash business

Management has received a number of unsolicited offers
March 12, 2019

G4S (GFS) is moving quickly with plans to separate its cash solutions business from the group. The support services group confirmed, alongside its full-year results announcement, that it has received unsolicited offers and is taking steps that will allow it to begin the separation process in the second half of 2019, but what form the separation will take is anyone’s guess at this stage. Analysts at Jefferies believe the “optimal outcome would be a competitive auction between trade buyers and private equity”. The broker calculated such a sale would net the group around £1.6bn-£1.9bn in proceeds, provided it includes retail cash offering Cash360 in the deal.  

IC TIP: Hold at 198p

Cash360 may well be on some corporate wishlists, but the cash solutions business struggled in 2018, with organic revenue decline of 9.4 per cent and an adjusted margin (pre-interest, tax and amortisation) down by 110 basis points. Admittedly, year-on-year comparisons suffered due to a large contract mobilising in 2017, although ATM and bank branch closures in the period also played a role.

The security business, which accounts for 85 per cent of sales, had a better year. The adjusted pre-tax profit margin expanded by 30 basis points to 6.5 per cent, while revenues saw organic growth of 3 per cent. Management’s growth strategy has been to integrate and increase the use of technology to improve efficiency and add value. Technology-enabled services now account for 45 per cent of sales in the secure solutions division, up from 40 per cent in 2017.

One-off charges hit statutory numbers in 2018, although G4S has made a habit of shooting itself in the foot. It was forced to book a £100m provision for settlement of a class-action lawsuit brought against the group in California, relating to inadequate provision of mealtime and rest breaks for employees.

Bloomberg analyst consensus gives adjusted EPS of 18.7p, up from 16.7p in 2018.

G4S (G4S)    
ORD PRICE:198pMARKET VALUE:£3.07bn
TOUCH:198-198.6p12-MONTH HIGH:283pLOW: 174p
DIVIDEND YIELD:4.9%PE RATIO:38
NET ASSET VALUE:49p*NET DEBT:199%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20146.891284.209.24
20156.8678.00.609.41
20167.5929613.09.41
20177.8338715.79.70
20187.511435.209.70
% change-4-63-67 
Ex-div:2 May   
Payment:14 Jun   
*Includes intangible assets of £2.1bn, or 132p a share