With financial headroom of £550m, acquistions look likely, with Brazil and China said to be areas where it wants to invest. Panmure Gordon said:
While there are later cycle elements to its business, we believe this has been more than factored into the current share price. From a valuation perspective, G4S is trading at a clear discount to its support services peer group despite generating very respectable growth at this stage of the cycle. Our target price of 293p is based on 14 times 2010 estimates, which is broadly in line with the sector average. On the back of this in line performance, we maintain a buy recommendation.
Seymour Pierce was also upbeat:
The group has invested £54.8m so far this year in acquisitions as part of the strategic shift by the management away from pure security operations and into a range of security management and secure logistics activities. The recently completed acquisitions of a juvenile justice business in the US (for £19.7m) and SecuraMonde in the UK. are all part of this strategy and significantly increase G4S's exposure to higher value security activities like prisoner escort, events security, personal protection and mine disposal. These are expected to drive accelerated growth in the group in 2010 and beyond.
Clearly the outlook is becoming tougher for G4S but we expect further growth in 2010. The shares are trading on a prospective PE for 2009 of 12.7 times and 11.4 times for 2010. This does not appear demanding for a defensive stock even at the end of the cycle. We re-iterate our buy stance with a target price of 275p.
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