G4S Plc – Value Analysis (LONDON:GFS) : December 26, 2017

Capitalcube gives G4S Plc a score of 34.

Our analysis is based on comparing G4S Plc with the following peers – Prosegur Compania de Seguridad SA, Westminster Group plc, Croma Security Solutions Group PLC, Thruvision Group PLC, Secom Co., Ltd., Loomis AB Class B, Securitas AB Class B and Gwarant Agencja Ochrony S.A. (PSG-ES, WSG-GB, CSSG-GB, THRU-GB, XSC-DE, LOOM.B-SE, SECU.B-SE and GWR-PL).

Investment Outlook

G4S Plc has a fundamental score of 34 and has a relative valuation of NEUTRAL.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It currently trades at a Price/Book ratio of (5.13).
  • We classify GFS-GB as Harvesting because of the market’s relatively low growth expectations despite its relatively high returns.
  • GFS-GB‘s median net profit margins and relatively high asset efficiency give it some operating leverage.
  • Compared with its chosen peers, changes in the company’s annual earnings are better than the changes in its revenue, implying better than median cost control and/or some economies of scale.
  • GFS-GB‘s return on assets has improved from below median to about median among its peers over the last five years.
  • The company’s relatively low gross margin and median pre-tax margin suggest operations may be constrained on pricing versus peers.
  • GFS-GB‘s revenues have grown more slowly than the peer median over the last few years, which combined with the stock price’s relatively low P/E ratio suggests substandard growth expectations relative to peers.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • GFS-GB seems to be constrained by the current level of debt.

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Leverage & Liquidity

GFS-GB is debt-constrained.

  • With debt at a relatively high 37.40% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 13.91%), and interest coverage level of 3.86x, GFS-GB seems debt-constrained.
  • Of the 8 chosen peers for the company, only 7 of the stocks have an outstanding debt balance. Companies with no debt include THRU-GB.

GFS-GB has moved to a Some Capacity from a relatively high leverage profile at the prior year-end.

  • GFS-GB‘s interest coverage is its highest over the last four years and compares to a low of 2.42x in 2015.
  • The increase in its interest coverage to 3.86x from 2.42x (in 2015) was also accompanied by an increase in its peer median during this period to 5.94x from 3.69x.
  • Interest coverage fell 0.82 points relative to peers.
  • GFS-GB‘s debt-EV is less than (but within one standard deviation of) its four-year average debt-EV of 40.46%.
  • The decrease in its debt-EV to 37.40% from 43.07% (in 2015) was also accompanied by a decrease in its peer median during this period to 13.91% from 19.23%.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Prosegur Compania de Seguridad SA 36.78 1.69 5.94 26.07
Westminster Group plc 11.19 0.51 -10.18 -79.94
Croma Security Solutions Group PLC N/A 1.53 3.05 153.98
Thruvision Group PLC 0 1.84 -5.44 999
Secom Co., Ltd. 5.7 2.35 146.83 169.2
Loomis AB Class B 16.64 1.2 17.25 53.97
Securitas AB Class B 26.18 1.25 12.02 30.18
Gwarant Agencja Ochrony S.A. 8.73 1.9 47 233.79
G4S plc 37.4 1.51 3.86 14.75
Peer Median 13.91 1.53 5.94 53.97
Best In Class 5.7 2.35 146.83 999

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Company Profile

G4S Plc engages in the provision of integrated security and related services. It operates through the following geographical segments: Africa, Asia Pacific, Latin America, Middle East and India, Europe, North America, and United Kingdom and Ireland. The company was founded in 2004 and is headquartered in London, the United Kingdom.

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