G4S tumbles as RBC cuts price target, estimates
G4S shares slumped on Friday after RBC Capital Markets cut its price target on the stock to 210p from 230p, noting that organic growth has slowed of late.
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The Canadian bank said management is talking a long-term improvement story.
“However, exceptionals, business shrinkage and downgrades continue,” said RBC, adding that investment is tough while net debt/EBITDA remains high.
It added that the stock has been a poor performer, down 10% this year, but with a full valuation relative to peers.
RBC cuts its 2015 earnings per share estimate on the stock to 14.10p from 14.50p and its 2016 EBITA estimate to £443m from £581m.
The bank said that while the pipeline is seen as strong there is little contract news, with a £40m a year win in Iraq the highlight.
In addition, RBC pointed to G4S’ estimation that 30% of its UK workforce is paid between the minimum and living wage.
It said the living wage affects 2016 and while G4S doesn't yet want to put a number on the potential hit, RBC assumes those who are paid just above the living wage will want a compensatory rise.
It added that this is not in its forecasts.
The bank maintained the stock at ‘underperform’.