G4S feels the pinch after Credit Suisse downgrade

London-listed security firm G4S was under the cosh after Credit Suisse cut the stock to ‘neutral’ from ‘outperform’ and slashed its price target to 250p from 320p.

The downgrade came as the bank reduced its 2015-2017 earnings per share forecasts by 3% and 12%, respectively, to reflect FX, growing headwinds in emerging market operations – which accounted for 40% of 2014 EBIT – and looming challenges within the cash solutions business.

“These factors will, we think, limit both organic revenue growth rates and the impact of internal initiatives to improve efficiency,” said CS.

The broker said it had expected the combination of efficiency programmes, cost reduction and investment into sales/business development would drive both robust organic growth and margin expansion.

However, the pressures in emerging markets were negatively impacting both growth and operational leverage.

In addition, the shift away from cash to electronic payment systems would likely see incremental pressure in the cash division, particularly in developed markets.

CS expected organic growth would be below management's mid-term expectations of 5-8% in both 2015 and 2016.

“The long-term restructuring of the business continues to offer significant opportunities to improve returns across the operation but cyclical and structural headwinds will, we think, delay and limit the impact.”

At 1411 GMT, G4S shares were down 2.4% at 220.30p.