In a note to clients, the Canadian bank said whilst the FTSE 250 security firm’s equity story “still appears to be strong” given a robust market and strong market positioning, “operationally the business has not delivered and debt levels remain high”.
Analysts added that the company’s expectation for flat profits in the full year had contributed to a 4% lowering of earnings per share (EPS) forecasts for 2018 and 2019.
RBC added that while the business “was in a mess” when the chief executive took over in 2013, there had not been much progress in the intervening years as far as shareholder returns were concerned.
“The shares are down 30% relative, the balance sheet is only marginally better (2.8x vs 2.5x net debt: EBITDA), the pension deficit remains a cash drag, exceptional costs remain high and EPS growth remains muted” the bank said, while also wondering if it was now time for “a change or exploration of something more radical”.
Analysts floated the idea of a sale or demerger of part or all of G4S’s Cash Services and Justice Services segments, which could “achieve the goals of focus and debt reduction as well as freeing up management time to focus on the core Security Solutions and Technology businesses”.
However, despite the issues, and a target price cut to 210p from 340p, RBC said it still liked the potential of the stock, citing the company’s “good markets” and remaining cost-saving opportunities, but it was “tough to see outperformance” given continual disappointments from the firm.
In mid-morning trading Thursday, G4S shares were up 2.7% at 183.1p.