G4S lifts underlying earnings 10% as UK sales decline

LONDON (ShareCast) - (ShareCast News) - Thanks to solid growth from emerging markets, outsourcing group G4S (Copenhagen: G4S.CO - news) increased first-half revenue from continuing operations 2.8%, though UK sales were down. Currencies held back turnover to a more modest growth of 1% to £3.7bn, with North America, Latin America and the Middle East strength making up for the UK decline and Ireland (Other OTC: IRLD - news) weakness, while and Europe was robust at 2% sales growth.

At the underlying level, with certain businesses now classed as discontinued and forex at constant rates, profit before tax, interest and amortisation climbed 5% to £193m.

Reported numbers from G4S were somewhat distorted as £124m of revenues and £8m of losses had been taken out of these figues and classed as discontinued, analysts noted, leaving them broadly in line with forecasts.

On the same basis and with corporate and interest costs lower than expectations, underlying earnings increased 10.5% to 6.1p per share.

Given this underlying improvement and boosted by £1.4bn of new contract sales bagged in the period, directors were happy to lift the interim dividend 5% to 3.59p per share.

The new contracts have an annual value £0.7bn, with contract retention rates maintained at approximately 90%, with the sales pipeline replenished to stand at £6bn annual contract value.

Chief executive Ashley Almanza reported that good progress had been made with his new strategic plans, with investment in growth and productivity programmes helping to underpin growth in the pipeline and underlying earnings.

"We won new contracts with a total value of £1.4bn and sales, new contract mobilisation and on-going productivity programmes provided increasingly good momentum through the first half. This is expected to deliver further improvements in the group's performance in the second half." Broker RBC Capital Markets said the company had issued guidance to keep consensus at around £450m EBITA, having taken out annualised losses of around £16m.

With the stock trading at a 2016 expected P/E ratio of 18 times, this looked to be "a significant premium to the other commodity outsourcers (Other OTC: UBGXF - news) ".