STOCKS NEWS EUROPE-G4S hit by Deutsche Bank downgrade

Shares in security group G4S (LSE: GFS.L - news) drop 4 percent in brisk trade, the sharpest fallers on Britain's FTSE 100 index, with traders blaming a Deutsche Bank (Xetra: DBK.DE - news) rating cut to "sell" from "hold" for the weakness.

While the investment bank acknowledges the firm's efforts to overhaul itself following a series of damaging failures, and cites its exposure to emerging markets as a strength, it reckons its valuation is looking full.

"We do not see significant "hidden value" in G4S to warrant its current valuation. We expect a lower Group growth profile in this cycle despite benefits from EM exposure. We see limited scope for large cost saving surprises," Deutsche Bank says in a note.

"We trust the new management's plans for the business can improve operating results; however in our view the benefits are more than priced in."

Deutsche Bank also cuts its target price for G4S shares - currently trading at 238.2 pence - to 210 pence from 221 pence.

G4S trades at a premium to its peers. It is on a 12-month forward price/earnings ratio of 16.9 times, according to Thomson Reuters StarMine SmartEstimates, which focus on the up-to-date predictions of the historically most accurate analysts.

Smaller security firm Securitas (Other OTC: SCTBF - news) , meanwhile, trades on 12.8 times, while outsourcing peers Serco and Capita (LSE: CPI.L - news) are on 14.2 times and 16.2 times respectively.

Trading volume in G4S stands at a third of its 90-day daily average, against the UK benchmark on just 16 percent of its average.

Reuters messaging rm://tricia.wright1.thomsonreuters.com@reuters.net