Morningstar | GardaWorld Not the Only Game in Town; G4S Remains Undervalued
No-moat global security leader G4S has had a volatile few months. Investor sentiment cratered at the end of 2018 on the back of disappointing operational results. Speculation at the beginning of April about a potential takeover from Canadian peer GardaWorld sent the share price rocketing by more than a third. The subsequent update from GardaWorld at the beginning of May to confirm it would not be acquiring G4S caused a minor pullback, but all things considered, the share price has actually held up reasonably well. G4S appears committed to splitting off its cash business in an effort to realise shareholder value, and recent commentary from the firm suggests it has received offers for this business from a number of peers. Between the disposal of the cash business and the improving operational performance, as evidenced in the recent first-quarter update, we believe there are near-term catalysts to bridge the gap between the current GBX 217 share price and our GBX 300 fair value estimate.Despite the large fall in the share price over the last two years, the business is structurally in far better shape than it has been at any point over the last decade. Debt levels have been reduced significantly over the last number of years, with net debt/EBITDA now below 2.5 times. Exposure to faster-growing emerging markets has been increasing linearly. Management has been hugely active in divesting from noncore, low-margin businesses. Exposure to loss-making contracts has been reduced to de minimis levels. Finally, operating margins are sitting close to all-time highs and have the potential to improve further as exposure to higher-value activities such as Cash 360 slowly improve the mix.
G4S is a security company that provides security and related services. Co.'s Secure Solutions products are comprised mainly of manned security and facilities management services, and its Cash Solutions products are comprised mainly of physical cash management services. Within the Secure Solutions services, Co. also provides: technology services, comprising the supply, installation and monitoring of alarm systems, and security and building systems technology; facilities management; and care and justice services. Within the Cash Solutions services, Co. also provides technology services to retailers, comprising hardware and software for customer cash management and related services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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