Report
Michael Field
EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Prosegur Muddles Through Messy 1Q

Narrow-moat Prosegur delivered a mixed set of first-quarter results. While organic revenue growth continued apace, rising 7.4% over the period, a whole host of one-offs dragged down EBITA, bringing the figure slightly below our estimates and those of the Street. We do not anticipate making any material changes to our forecasts at this early point in the year and fully expect much of these one-off effects to moderate or reverse over 2019. We reiterate our EUR 7.10 fair value estimate and see attractive upside potential from here for investors willing to look through the current malaise to the moaty business that lies beneath.

Divisionally, the cash business continued to see organic revenue growth of almost 8%, but it was the main source of the EBIT decline; margins fell more than 500 basis points as a results of temporary mix effects and some issues with the company’s Australian business. We continue to monitor the situation here closely to ascertain how quickly operating margins can feasibly revert to levels more in line with historical averages. Organic revenue growth in the guarding business remained robust at 5.3%, while slight margin declines were the result of translation effects from hyperinflation in Argentina. The alarms business continued to grow apace, with organic revenue rising close to 20% over the period. While the business remains underscaled, it is quickly moving to the point of generating a critical mass in several countries, at which point we should see a more significant contribution to group operating margins, to which it is currently dilutive.

Structurally, we believe Prosegur is well positioned, and we are encouraged by the continued penetration of new, higher-value, technology-based products in the cash and guarding businesses. New products now constitute 15% and 25%, respectively, of each division’s revenue, up from 11.8% and 23% at the full-year 2018 point.
Underlying
Prosegur Compania de Seguridad SA

Prosegur, Compania de Seguridad and its subsidiaries are engaged in the provision of security guards and related services; fund transport and handling through a fleet of armored vehicles; alarm and electronic security systems; distribution and auxiliary services, including storage, logistics and distribution services; document transport and courier services; cleaning services and temporary employment. Co. is also engaged in security consulting and external training.

Provider
Morningstar
Morningstar

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.

We have operations in 27 countries.

Analysts
Michael Field

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