Profit poised to rise 24% at booming G4S
In a recession we use credit and debit cards less frequently but use cash more because we can monitor our spending more effectively. The amount of money taken out of cash machines was more than £47bn in the third quarter of this year and this is expected to rise over the coming months.
In the money: G4S chief Nick Buckles
This is good news for G4S, the world's largest security company, which grew out of the old Securicor. It is best known for collecting cash from stores and banks, but it is also involved in a wide variety of other security services in the UK and elsewhere.
It operates prisons and moves prisoners around the country, manages immigration centres in Holland, guards US embassies and handles the security for nuclear weapon plants, America's Kennedy Space Center and Wimbledon. Its cash centres distribute £300bn a year to banks and retailers and it operates cash machines for most UK banks.
The company is particularly active in Britain and America but it operates in 120 countries and is growing fast in developing markets.
G4S is the largest employer quoted on the London Stock Exchange and the second largest private employer in the world, with 600,000 staff. Labour accounts for 70% of group costs, but the recession might make it easier and cheaper to find workers, particularly as most of the workforce is unskilled or semi-skilled.
A trading statement from November 10 was upbeat. Chief executive Nick Buckles said underlying growth for the first nine months of 2008 was 10.3% and he was very confident about the future.
Analysts share this confidence. They predict profits will rise 28% to £331m this year, with the dividend expected to increase from 4.96p to 6.2p. Further growth is forecast for 2009, with profits estimated at £375m and a dividend of at least 6.7p.
Not only is the company increasing its presence around the world, but it is also expanding into more profitable areas, such as risk management consulting.
Buckles, 47, has been with the company since he was 23, so he knows the business inside-out. Looking ahead, the group may lose a few customers as companies collapse or become smaller, but it should also benefit as people use more cash and governments outsource more activities, such as prison management.
•• Midas verdict: At 2023/4p, G4S is well below its 2008 peak of 247p yet it is optimistic about the future and has plenty of support in the City. The stock deserves to go higher. Buy.
Telecom Plus powers on
Back in July, Midas recommended Telecom Plus, which supplies consumers and businesses with electricity, gas, phone and broadband under the Utility Warehouse brand.
Telecom Plus does not own any of these products, but it buys in bulk from firms such as npower and passes on savings to customers. These are particularly welcome today and the company unveiled eyecatching results last week.
In the six months to September 30, pre-tax profits were up 55% to £9.8m and the dividend rose from 4p to 5p. The company has net cash of almost £29m and unless something dreadful materialises, it promises to pay a total dividend of 17.5p for the year to March 2009, rising to 22p in 2010.
Brokers suggest profits will rise almost 40% to £23.5m this financial year and they also believe the company can double customer numbers by 2010.
The group still has just 1% of the phone and utilities market, so there is plenty of room to grow. It acquires customers through word of mouth and independent, part-time distributors.
In a recent survey, 94% of customers said they would recommend Utilities Warehouse, so word-of-mouth expansion looks promising. The number of distributors is growing too, as people try to earn extra cash.
Chief executive Charles Wigoder is a fortunate or perhaps extremely gifted man. He owns 16m Telecom Plus shares and the stock is one of the very few to have risen in price over the summer.
• Midas verdict: When Midas recommended the company, the shares were 315p. Today they are 359p, a rise of 14%. Investors will not lose out by selling half their shares and taking profits, but it is worth holding on to the rest as the stock is yielding five% and the company has plenty of potential.
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