G4S update makes Credit Suisse more cautious
By Iain Gilbert
Date: Thursday 15 Nov 2018
(Sharecast News) - Credit Suisse lowered its estimates on G4S following its third-quarter trading statement, but the Swiss bank said the private security outfit's investment case was still "sufficiently attractive" for it to reiterate its 'outperform' rating on the group.
Credit Suisse said G4S was "lacking momentum", leading analysts to lower their price target on the FTSE 250-listed group from 330p to 250p.
Despite an easier comparative period last year, organic revenue growth in the third quarter slowed slightly relative to the second. "A lack of positive operational leverage and investment into new products has also stymied margin progression."
CS analysts' views on revenue growth and margins are now "much more cautious" given end market challenges and a lack of operational delivery.
"We now assume almost all cost savings are offset by pressure on prices within the business. Earnings and FCF should, however, still grow given modest organic growth and lower interest charges."
While reiterating its 'outperform' stance on the shares, CS said it was cognisant that, after a "series of disappointments", the firm would have to deliver EBITDA growth in the coming year in order to produce a positively rerating.
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