Should I Buy G4S Plc?

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It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. So should I buy G4S Plc (LSE: GFS)?

Olympics loser

To the public, G4S is a running joke. It was the biggest loser of last year's London Olympics, due to the security recruitment debacle. Being publicly condemned as "incompetent, amateurish and irresponsible" is a hard tag to shake off. The tabloids still love to unearth fresh examples of G4S security guard uselessness. Yet the G4S share price tells a different story. It is up 25% since November. Should I buy it?

Group 4 Securicor was formed in 2004, when Securicor and Group 4 merged. It has a turnover of more than £1.7 billion, with 55,000 employees managed from more than 100 offices. Its 10,000 customers include 59 FTSE 100 companies, and most government departments. The security of the nation is in its hands. But is it secure enough for your portfolio?

Play the Games

G4S has just published its preliminary results, and the instant market reaction was mild disappointment. As I write, the share price is down 2.5%. Yet it shrugged off its Olympic stumble to post a rise in 2012 revenues, with total turnover up a healthy 10.4% to £7.5 billion, or 8.1% excluding the Olympics. Organic growth, ex-Olympics, was 6.9%. PBITA profits, ex-Games, rose 6% to £516 million. Adjusted earnings per share (EPS) rose 3.4%, and the group increased its full-year dividend by 5% to 8.86p per share. Its Olympics blunder cost it £70 million, plus another £18 million in related costs. On the plus side, it generated £35 million worth of savings, through structural reorganisation. Separately, G4S announced that chief financial officer Trevor Dighton will retire at the end of April.

Nick Buckles, chief executive officer, praised the group's solid organic turnover growth and margins, which both topped 7%, helped by new contract wins with US companies and the UK government (the latter a triumph of hope over experience). Like many FTSE 100 companies, G4S is also growing strongly in developing markets, which now account for one-third of group revenues. Buckles also hailed the group's broad customer base, which stretches across 125 countries, and the steady income stream from its £3.5 billion annual contract pipeline. Who's laughing now?

Joking aside

The market would have liked more, but the numbers don't look too bad to me. I'm particularly impressed by its emerging markets expansion. With the West halfway through its first lost decade, the growth has to come from somewhere. Recent share price growth means the stock isn't cheap, however, trading at 14.5 times earnings. Its dividend isn't spectacular either, yielding 2.9%, covered 2.4 times (giving it scope for further hikes). EPS growth looks promising, on a forecast 18% this year and 10% next year, and it trades at an undemanding PEG of 0.7. G4S may remain a national joke, but investors can afford to see the funny side. If it was a little bit cheaper, that would really put a smile on my face.

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