If it has taken the interest of a relative industry minnow, albeit backed by the deep pockets of American private equity, to shine a light on what the true value of G4S might be, then so be it (Robert Lea writes).
G4S is a titan of the security guarding sector, with annual revenues of £7.7 billion and 530,000 employees. It is not only one of Britain’s largest multinationals but also the global leader in its industry.
However, it has fallen out of favour with investors and, with its stock market value at a fraction of its annual turnover, it has long been out of the FTSE 100 index.
G4S started the week worth only £2.2 billion, or 145p a share. That changed quickly when Gardaworld, a Canadian rival with £2.2 billion of annual revenues and 100,000 staff, went public, saying that it had presented the G4S board with a takeover approach valuing the company at 190p a share, or nearly £3 billion.
Gardaworld is 51 per cent-owned by BC Partners, the private equity firm, with the rest of the business substantively held by Stéphan Crétier, the founder and chief executive. An offshoot of the old Barings Bank, BC Partners does deals in the billions of pounds, although it probably doesn’t like to be reminded of its unhappy ownership of Foxtons, the estate agent.
Having been first ignored and then rebuffed by the G4S board, the BC/Gardaworld pitch is simple: management has failed and their reputation after numerous reverses — think security (or lack of it) at the London Olympic Games, defrauding the Ministry of Justice, sacked from Birmingham Prison — is shredded.
The G4S response is fairly simple, too: Ashley Almanza has spent seven years changing the corporate culture and getting G4S out of onerous contracts and poor-margin or failing operations. That culminated with the sale of its cash-collection businesses — though not in Britain, for pension liability reasons — for £727 million this year. It also has technology-enabled growth businesses flying under investors’ radar. It says that the bid is opportunistic because of the pandemic-depressed share price and has been timed when G4S is at an “inflection point” in its recovery.
Two issues arise. Is Mr Almanza the right man to continue running G4S? And if it is about to embark on a golden era, why have investors not woken up to this?
These can be answered, if crudely, by taking G4S’s share price at the point that Mr Almanza joined — 230p in June 2013 – and comparing it with the undisturbed 2020 share price. Ignoring the takeover-related rally and the plunge caused by the virus, the market valued it at about 200p.
Research from the Quest algorithms of Canaccord Genuity, the stockbroker, concludes that Gardaworld’s interest has prompted investors to properly reappraise G4S. It, for one, likes what it sees and reckons G4S stock is worth 303p. At 191p last night, the wider market doesn’t seem to agree.
With the board and leading shareholders unconvinced about the level of the offer, what happens next is binary. BC Partners raises its offer. Or it walks away. In the latter event, one might expect the shares to plunge back whence they came, but there are enough value investors and bottom-fishers now seriously invested to suggest that present share price levels are at least underpinned. Meanwhile, there is the intriguing issue of more than £2.7 billion of pension liabilities and a deficit of £276 million. A poison pill? Or something that could be resolved by BC Partners’ offer?
ADVICE Hold WHY Shares may crash if a takeover doesn’t happen, but there appears to be enough unseen value in the company and sector in medium term
Loungers
The coronavirus may have kiboshed the growth ambitions of the majority of businesses in the pub and restaurant sector, but Loungers is increasingly confident of beating its expansion targets (Dominic Walsh writes). Full-year results from the operator of the Lounge and Cosy Club café-bar chains suggest that it has bounced back from lockdown, while the woes of its rivals should offer opportunities to secure top sites in target locations.
According to Alex Reilley, 46, the Loungers chairman, both its brands have “barely reached 30 per cent of their potential scale”. While he expects the slightly more upmarket Cosy Club to grow from 30 sites to 100 over time, in the case of the Lounge chain he said that the stated target of 400 sites, up from 137 today, “feels increasingly conservative”.
Loungers was founded by Mr Reilley and two friends when they opened their first café-bar in 2002 in Bristol. Lion Capital acquired a controlling stake in 2016 and 18 months ago the business was floated at 200p.
Since the reopening of the hospitality sector on July 4, the company’s like-for-like sales have soared by 29.9 per cent, helped by the Eat Out to Help Out discount scheme and the cut in VAT. Excluding those leg-ups, underlying like-for-like sales over the same period were down 1.1 per cent, ahead of the sector, and were in positive territory over the past nine weeks. Those are impressive numbers and, on the basis of what we’ve seen so far, they put Loungers near the top of the sector’s performance league table.
So how do Mr Reilley and Nick Collins, his chief executive, do it? First, they open in market towns and secondary suburbs where rents are lower and competition less intense, which in turn means that they can offer value for money. Their all-day format, offering everything from a coffee to a full meal, means outlets appeal to a wide customer base and act as a community hub.
Loungers is already back on the expansion trail, having opened two new sites with another four in the pipeline, and, despite fears of fresh lockdowns and curfews, it is confident of getting back to its previous opening rate of 25 sites a year.
ADVICE Buy WHY The shares should respond as life normalises
