Slowly but surely, G4S seems to be walking away from its accident-prone past. Shareholders were certainly in more forgiving mood yesterday after a better-than-expected first-half showing.
The vast bulk of the company operates outside the UK and in almost every region it posted decent revenue growth. That fed through into a respectable pick-up in underlying profits before debt interest. And the dividend, which had been seen by some as vulnerable, was maintained.
After stripping out businesses earmarked for sale or closure, and toxic contracts from the past, the remaining group is doing nicely. But while Ashley Almanza, the chief executive, can’t be blamed for the mistakes of the past, he still has to mop up the mess.
His disposal plan has a long way to go. Out of 63 unwanted subsidiaries, 38 are still to be got rid of, including four big ones. One promising titbit yesterday was that the company appears to have found a buyer for its large Israeli business, with a £75 million price tag mooted.
The disastrous contracts G4S was locked into under Nick Buckles, Mr Almanza’s predecessor (payoff £1.2 million), continue to be a drag on the group.
The obligation to house asylum seekers, at a loss of about £6,000 a person, looks set to run for another three years. A loss-making PFI hospital contract G4S is also locked into will last 30 years.
The big question for investors is whether the £1.4 billion of new contracts highlighted by Mr Almanza yesterday will contain more mistakes such as these. G4S argues that new deals made now come under far greater scrutiny than they did in the old days and that there is much less freedom for local managers to make their own overoptimistic decisions. Time will tell.
Otherwise, the outlook for G4S looks promising. Scale economies, technology and the globalisation of clients should all favour G4S over mom-and-pop competitors in the fragmented security industry.
The immediate priority is to push down debt. Mr Almanza managed to reduce the leverage ratio from 3.3 to 3.2 in the period and has stuck with his promise to reduce it further to 2.5 within 18 months. That will greatly restore confidence in the sustainability of the dividend.
After the 16 per cent surge in the shares to 227p yesterday, they trade on 14 times full-year profits and yield a prospective 4.1 per cent.
MY ADVICE Buy
WHY Legacy problems fading, sales growth rolling along, dividend safe
Stock Spirits Group
When Stock Spirits was floated three years ago, it was referred to as a “mini-Diageo”. It had a former executive of the Smirnoff and Johnnie Walker group as chairman and had been touted as a possible target for the FTSE 100 drinks giant.
How long ago that now seems. The shares have halved since peaking at 315p as trading in Poland, its biggest market, lost its bite amid duty increases and a price war. In recent months the group has been corralled into making some changes, including getting rid of its chief executive by the rebel shareholder Luis Amaral, a cash-and-carry tycoon.
Half-year results suggested yesterday that things may be looking up. It now has a chief executive, having persuaded Mirek Stachowicz to take the job full-time. Second, trading in Poland is stabilising thanks to a combination of less aggressive discounting by its main rival and its own self-help measures.
One change it has made in Poland is to reduce prices to rebuild volumes and market share. What has not changed is Stock’s strong cash generation, which funded a special dividend last month. If the new management’s actions continue to work, investors can expect to reap the rewards.
MY ADVICE Hold
WHY Encouraging signs of a turnaround in Poland
Paysafe Group
It may have a market value north of £2 billion but few will have heard of Paysafe. That’s partly because it never stops changing its name. It was previously called Optimal Payments and before that Neovia and before that Neteller.
Which is a pity because it has thrived in the rapidly growing world of online payments and electronic wallets and done so by focusing on niche areas shunned by big players such as PayPal and WorldPay. Its particular specialities are payments to online gambling companies, online gaming firms and party-selling organisations. Here the risks are a little higher but the margins are correspondingly fatter. It has also benefited from a big acquisition last year of Skrill, a rival.
Yesterday it unveiled better-than-expected interim numbers and again pushed up its guidance for full-year revenues on the back of galloping demand for electronic wallet services. The next big idea is an interesting ordering and payment platform for merchants.
The shares, which were up 6 per cent to 415¼p, trade on 14 times this year’s forecast profits. There is no dividend.
There are risks. The regulatory landscape is challenging, the company is inevitably vulnerable to fraudsters, and costly IT glitches can never be ruled out. The shares are bound to be volatile but they still look cheap compared with those of rivals.
Paysafe has shown itself competent in executing acquisitions in a rapidly consolidating industry. It is also a potential bid target itself for one of the big beasts.
MY ADVICE Buy
WHY Innovator with growth and consolidation prospects
And finally . . .
Investors sat on their hands before the EU referendum, leading to subdued first-half trading at Share plc. The AIM-listed retail stockbroker saw revenues slide by £200,000 to £7.2 million. Underlying profits sank from £608,000 to £110,000, depressed by the cost of a technology upgrade. However, the company was cheered by its growing market share in Isas and by clinching a new strategic partnership to provide certificated dealing for Computershare, the share registrar. The shares rose by nearly 1 per cent to 28½p.
Follow me on Twitter @HoskingTheTimes
