Should I Buy G4S Plc?

Accident-prone G4S plc (LON: GFS) stumbles from one disaster to another. But has it also stumbled on a once-in-a-lifetime emerging markets growth opportunity?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Nobody in their right mind would buy G4S (LSE: GFS). Or would they?

Olympic loser

G4S is the FTSE 100 company the British public loves to hate (and ridicule, lampoon and despise). It was the biggest loser in last year’s London Olympics, following its embarrassing security recruitment debacle. It is politically toxic, having paid no tax in 2012, despite working on hugely lucrative government contracts. Chief executive Ashley Almanza was up before the Public Accounts Committee last month, as part of a £24 million electronic tagging scandal. Given public antipathy, you could say G4S is the ultimate contrarian stock. And yet…

G4S has been a lousy investment, up just 30% in the past five years, and 4% over the past year. That compares to 60% and 11% growth on the FTSE 100 as a whole. Its recent interim statement disappointed the market, despite organic growth of 4.8%, rising to 14% in emerging markets (where it now earns 40% of its profits). Investors were concerned that the newly announced investment of up to £20 million in customer service would prove a drag on future earnings. There were also disappointed by the lack of new business disposals. Troubles in Europe and lower US spending on security are also a worry. The company’s recent aggressive acquisition strategy has racked up huge debts.

A more secure future?

Despite that, G4S has a great opportunity to put things right. Analysts Freedonia forecast the global security market will grow 7.3% to $244 billion by 2016, notably in emerging markets, where G4S is strong. That’s a juicy target to aim at, given that total G4S revenues in 2012 were just $11 billion. G4S may face reputational problems at home, but its reputation is higher abroad. China, India, Russia and South Africa should all deliver double-digit growth.

This could make G4S an exciting proposition, providing it survives the massive reputational damage if found guilty of inventing criminals then charging the taxpayer to tag them. Politicians may be forced to take tough action, especially with an election looming. Given its £1.8 billion debt pile, and a seemingly endless supply of, G4S is risky. But earnings per share are forecast to hit 7% in 2014, after a 20% drop this year, and you can buy it at 12.3 times earnings. The 3.4% yield will offer you some reward, while you’re waiting for G4S to profit from the emerging global security market. But it certainly isn’t a secure investment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Harvey doesn't own any shares in G4S.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »