Morningstar | PSG Updated Forecasts and Estimates from 14 Jan 2019
Narrow-moat Prosegur delivered a third-quarter update very much in line with our expectations for the full year. While foreign exchange rates had a heavy impact in the period, organic revenue growth remained strong, rising more than 8%. While we continue to adjust for weakening Latin American currencies, we do not expect to make any changes to our longer-term forecasts nor to our EUR 7.10 fair value estimate. We believe Prosegur shares currently offer an attractive opportunity to accumulate a position in a high-quality name in the security space.Divisionally, the cash business increased revenue at close to 9% organically, in line with its longer-term rate of growth, while margin compression of around 150 basis points was the result of macroeconomic pressures. The lag effect in passing on cost inflation and the effect of currency devaluation on the cost of imported equipment came into play, issues we generally expect to correct over time as Latin American currencies stabilise. In the guarding business, organic revenue growth was 6%, again in line with its longer-term rate, while margins were flat at 2.7%, a level we believe can be improved upon substantially over time, both through operational efficiency gains and structurally through the advent of integrated security contracts, where manned guarding is supplemented with technology. Lastly, Prosegur Alarms, the group’s smallest division, generating just 6% of group revenue, saw the strongest revenue growth, 20% on an organic basis.
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.
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