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Five reasons to be cheerful when it comes to G4S, says Credit Suisse
Credit Suisse reiterated its 'outperform' stance and 330p price target on security firm G4S on Wednesday, highlighting five reasons to be positive.
The bank pointed to accelerating organic growth, rising EBITA margins, improving working capital over time, expanding return on invested capital and incremental growth opportunities from the company's CASH 360 product.
"We do not think that the combination of these factors is fully reflected in the share price," CS said.
It expects organic growth to rise from a decline of 2% in the first quarter to a 4% jump in the second, and 5.9% in the second half of 2018 as comparables ease and the combined Indian/Middle East markets return to growth.
As far as margins are concerned, the bank forecasts a 64 basis points improvement from 2017 to 2020, driven by cost reduction programmes. "We expect circa 60% of operational efficiency programs to drop through to EBITA with the remainder reinvested into the business."
In addition, it noted that G4S has a strong position in a large and evolving end market. It expects EBITA in the US to more than double from 2017 to 2020 as new contracts are added and said "material" opportunities exist in the rest of the world and potentially in a tangible expansion of its currently small bank office outsourcing services.
"On a relative basis GFS is trading near levels only seen during period of financial stress, severe operational weakness or during a significant cyclical rally. None of those environments is present today. As growth accelerate and ROIC rises we see potential for the multiples to re-rate."