Shares in security firm G4S (GFS) slump 12% to a 2-year low of 190p after a third-quarter trading update which has seen investors rush for the exits.
Underlying sales growth was 2.5% in the last quarter to 30 September. That's against market expectations of 4.5%. This means underlying growth for the first nine months of the year was just 1.1%, well short of the company’s medium-term target of 4% to 6%.
THREE REASONS TO WORRY
The issues seem to be three-fold: weak care and justice revenues in the UK, slow sales in security across mainland Europe, and sluggishness from its traditional cash-handling business, where it transports cash for customers.
This comes after much fanfare at the half-year stage about a ‘step-change in revenues’ and new contract wins which pushed the shares as high as 280p.
Earnings are expected to be flat on last year which has led investors and analysts to wonder whether after five years of restructuring the company needs to take more radical action including selling under-performing units.
G4S’s care and justice business generates about 7% of group revenues or £500m a year but it's not very profitable.
MAKING THE WRONG HEADLINES
It hit the headlines last year when it had to suspend workers at an immigration removal centre over claims that they abused migrants.
It was back in the news this summer when the government had to step in and take control of Birmingham prison following a damning report by the chief inspector of prisons.
Meanwhile the cash solutions business, which generates 16% of group revenues or around £1.2bn, is estimated to be worth as much as £2bn were G4S to put it up for sale.
Alternatively it could be spun off as a separately-listed business following the example of Spanish rival Prosegur whose cash business was floated a year and a half ago and now has a market value of €2.6bn or £2.3bn.
