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?

| More on:

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.

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…

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

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.

More on Investing Articles

Lady researching stocks
Investing Articles

Here’s why I’m avoiding this dirt-cheap dividend penny stock!

A dirt-cheap, dividend-paying penny stock with a vast presence sounds good on the surface. This Fool isn't convinced, however.

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

These top income stocks look dirt cheap to me. I’d buy them now

I'm taking advantage of today's stock market weakness to load up on top value income stocks

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

Excessive stock trading erodes long-term gains!

Are high trading fees eating away at your returns? Research suggests that excessive stock trading could be to blame.

Read more »

Young woman sat at laptop by a window
Investing Articles

Pearson shares are up 25% since the market correction! Should I buy now?

Why have Pearson shares rallied since the market correction? This Fool looks at the educational provider in more detail and…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Recession ready! I’d buy these FTSE 100 stocks for tough times

Jon Smith explains some of his favourite options for defensive FTSE 100 stocks that he's thinking of adding to his…

Read more »

A graph made of neon tubes in a room
Investing Articles

Down 45%, are these UK shares no-brainer bargains right now? 

Several top UK shares are down significantly and two companies on my list look like possible attractive buys right now.…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

I bought these 2 FTSE 100 shares two years ago. Should I now add to them?

Andrew Woods asks if he should add to his current holding in these two FTSE 100 shares ahead of a…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Has the Deliveroo share price bottomed?

The Deliveroo share price (LON:ROO) is down nearly 60% in 2022. Paul Summers asks whether it's now hit bargain territory.

Read more »