Credit Suisse upgrades G4S on valuation, sterling weakness

It said G4S would benefit greatly from sterling weakness, which the Swiss bank reckons will fall 10% across the board from its pre-referendum levels.

In addition, it argued that while the company has had more than its share of issues in recent years, the vast majority of its underlying business is stable and defensive.

CS said it expects asset sales over the next 18 months, which combined with improved working capital management, should lead to de-leveraging and free cash flow coverage of the dividend.

Finally it said that at 9.6x estimated 2017 price-to-earnings with a covered 5.4% dividend yield, the valuation is attractive.

“The key risks are that the asset sale process is delayed by market uncertainty resulting in a protracted period of high leverage and a 2016E dividend yield that is only just covered by FCF.

“We continue to see structural headwinds in the cash solutions business, which will only be partially offset by growth in cash outsourcing in the US. We capture this in our sum of the parts valuation.”

At 1217 BST, G4S shares were up 9.5% to 179.60p.