Deutsche Bank upgrades G4S on 'positive' Q3 update

G4S rallied for the second day in a row as Deutsche Bank upgraded the stock to ‘hold’ from ‘sell’ and lifted the price target to 220p from 180p following the company’s “positive” third-quarter update on Wednesday.

DB said near-term organic growth and cash flow have been better than expected, with FX continuing to lend a hand.

“The next material catalyst before the FY-16 results is likely to be a disposal announcement. Whilst long awaited (already in our forecasts) and necessary for the balance sheet to de-lever, any larger disposal is likely to be supportive to sentiment.”

The bank said its ‘sell’ case on the stock had been based on a view that even with disposals, G4S’ leverage issues were difficult to fix given limited organic de-levering and a high dividend payout.

“What has changed is that the last two earnings updates surprised with better-than-expected cash flow,” it said, noting that the company is seeing strong top-line organic growth momentum.

DB lifted its earnings per share forecast for 2016 to 15.7p from 14.8p and its estimate for 2017 to 17.5p from 16p.

At 1135 BST, G4S shares were up 4.5% to 253.70p.