G4S Plc Ord 25p Shares (GFS)

Company overview

Group 4 Securicor (G4S) is an international security solutions group, operating in over 125 countries throughout the world. The company was formed via the July 2004 merger between Securicor plc of the UK and Group 4 Falck of Denmark. Whilst listed on the London Stock Exchange, the group also retains a secondary listing in Denmark. The company is currently the largest employer of staff quoted on the London Stock Exchange, employing approximately 625,000 personnel on a global basis.

HL Comment (23 August 2011)

The group's half year results (23Aug2011) saw management highlighting accelerating organic growth for most geographical regions and business sectors. Group turnover rose by 5pc to £3.76 billion (2010: £3.57 billion), while adjusted profit increased by 3pc to £239m. The group also highlighted a healthy pipeline of bidding opportunities, particularly for the UK government market, while its New Markets businesses (now representing 29pc of group revenues) continued to show good organic growth - up 9pc overall. Furthermore, management again highlighted plans to invest around £200m per year on acquisitions, with at least half of this figure expected to be deployed at its New Markets division on an annual basis.

Negative Points

• Ultra low interest rates in many of the group's markets continue to impact its Cash Solutions business – customers have less incentive to transfer money to the bank. Organic growth of 8pc for its New Markets business helped offset 2pc and 4pc declines in Europe and North America respectively.
• Some renegotiation of UK contracts was previously made – part of the government’s drive to reduce costs.
• A UK court services contract has recently been lost to a competitor, whilst the ending of US army work in Iraq has also impacted. Business for the US government was slightly negative overall.
• The group invested a total of £65m in 2010 on acquisitions. While purchases continue to expand the group's footprint, risks including that of overpaying are always inherent.
• Competition, failure to achieve contract wins and the pace of economic recovery continue to cloud future prospects.

Positive Points:

• Management highlighted accelerating organic growth for most geographical regions and business sectors. Total organic growth of 5pc was achieved for the half year, up from +2.1pc over the full year 2010.
• Whilst maintaining its strict financial screening criteria, management noted a strong pipeline of M&A opportunities.
• The dividend policy remains progressive – an 8pc increase in the half year dividend payment was announced.
• The group's geographical footprint remains diverse. New/Emerging Markets currently represent 29pc of group revenues.
• New contracts continue to be won. Examples include *Security provider to the London 2012 Olympic and Paralympic Games *the prisoner escorting contract for the Scottish Prison Service effective from January 2012 *a number of facilities management contracts in the health sector, including Liverpool Women's Hospital and Heartlands hospital in the Midlands, which is one of the UK's largest acute hospitals.

Consensus

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.