THE City anticipates a “messy” set of half-year results this week from G4S, the under-fire security firm at the centre of increasing break-up speculation.
The company has been the worst-performing stock of its peer group for the past 12 months following last year’s botched Olympics contract and more recent accusations of over-charging for UK government electronic tagging services.
This has led to talk of a possible rights issue, though most believe that new chief executive Ashley Almanza will be saved from making a cash call on Wednesday.
SEB Enskilda expects G4S to post its lowest half-year profits “in at least a decade” but, like analysts elsewhere, Daniel Patterson notes that the company should also report strong cash flow thanks in part to belated Olympics payments.
“For this reason we do not think G4S will have to issue new equity, a concern that many investors have, although we cannot fully rule it out,” Patterson said.
Meanwhile, Panmure Gordon’s Mike Allen is anticipating a “messy” set of numbers.
“We would expect to see good organic growth, albeit with margins under pressure with some uncertainty over its win rate in the UK following the electronic tagging debacle,” Allen said.
“From a geographic standpoint, we would expect Europe to remain difficult, with emerging markets delivering above-average growth.”
Caroline De La Soujeole, an analyst at Cantor Fitzgerald, said: “It is not unreasonable to suggest that the new management team may announce a modest rights issue, giving themselves some breathing space, starting their tenure from a clean sheet.
“This is unlikely to be a dull set of interim results.”
G4S has come under scrutiny from investors after revealing earlier this month that activist hedge fund Cevian Capital has become one of its largest shareholders.
Sweden-based Cevian is the biggest of Europe’s activist fund managers and its UK arm is chaired by former City minister Lord Myners.
It has built up a 5.11 per cent stake in G4S, making it the group’s third-largest shareholder after Invesco’s 15.03 per cent and Prudential’s 6.33 per cent.
Last year, Cevian successfully lobbied for the break-up of Cookson after eventually building up a 20 per cent stake in the industrial materials group.
Cevian retains substantial stakes in both the resulting firms, ceramics specialist Vesuvius and the smaller electronics provider Alent.
Cevian’s appearance on the G4S share register will increase the pressure on Almanza to come up with a plan to boost shareholder value. Analysts said it could also arouse interest from other potential buyers.
“Really, you could be talking about any private equity firm with a pile of cash at its disposal,” one dealer said.
After its three largest shareholders, the biggest stakes in G4S are owned by Tweedy Brown – the United States fund manager based in Rhode Island – with 5.06 per cent and fellow US investment house BlackRock with 4.72 per cent. In addition, Microsoft founder Bill Gates holds a 3.2 per cent stake.