G4S on right track, say analysts

Security expert G4S pleased the market with its half-year report on Wednesday, with shares up 2.8% in morning trading.

Ashley Almanza, who took over as chief executive officer on 1 June, has already started the work needed to shore up the group's balance sheet by divesting a number of non-core businesses. G4S also announced plans to issue up to 140 million new shares, representing 9.99% of its existing issued share capital.

The company said the funds would be used for repairing the balance sheet, and providing greater flexibility for the business to invest.

Revenues for the period came in at £3.65 billion, a 7.2% rise on the corresponding period last year, however adjusted earnings per share, at 6.6p, fell by 13.2%. The dividend remained flat at 3.42p.

The company reported a "strong and growing global contract pipeline of £4 billion per year, leading to optimism for sustainable profit growth. Almanza said: "In the near term, 2013 will be a year of consolidation for the group with the actions we are now taking starting to deliver tangible benefits during 2014."

Analysts' view

Investec analyst Gideon Adler placed forecasts under review following the announcement, as the numbers came out at the lower end of the expectation range. "Traumas were expected, and much will now lean on the message struck by management this morning," said Adler, who retained his 'buy' recommendation.

Proceeds from disposals, both realised and prospective, should support a gearing of up to 2.5 times this year, especially when considering the new equity that is being raised. This assumes even a 10% earnings downgrade, said Adler, however this may be conservative.

Panmure Gordon analysts Mike Allen and Paul Jones also found G4S's results lower than they had expected. "We think management has done enough to shore up the balance sheet with the placing and disposals, with more to come in the second half," said the analysts, who maintained a 'hold' rating for now but were reassessing their target price.