G4S plc Misses Profit Forecasts After “Challenging” 2013

G4S plc (LON: GFS) is a business in need of a turnaround.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 12 March, 2014 11:25 am GMT

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.

The shares of G4S (LSE: GFS) took a 4% hit during early trade this morning, after the private security company, still mired in scandal for overcharging the government for electronic tagging of criminal offenders, posted annual profit below market expectations.

At the time of writing the share price is 235p.

G4S’s 2013 operating profit increased to £442m from £430m, but this was below analyst projections of £455m, as revenue slumped in Europe and the US.

Despite investor fears of a slowdown in emerging markets, G4S grew revenue to £7.4bn from £7bn the year before, with 16% growth in emerging markets. Emerging market revenue represents 37% of total group revenue.

The chief executive, Ashley Almanza, commented:

“This has been an extremely challenging year for G4S. We have taken clear action to address longstanding issues and have introduced wide ranging changes to strengthen our business. We can now look to the future with increasing confidence, focusing on the growing demand for G4S services that underpins our plans to deliver sustainable, profitable growth.”

While this has been a tough year for the firm, the board opted to maintain the dividend, citing the introduction of “wide ranging changes that will transform our business”. The firm is confident it can deliver profit growth having set aside £386m for restructuring.

G4S declared a final dividend of 9p supported by earnings per share of 15p (down from 16p a year earlier).

Should the dividend remain unchanged again next year, shares in G4S may offer a potential income of 3.8%, and currently trade on a price/earnings ratio of 16.

The decision to ‘buy’ remains up to you.