Gamble of the week: security firm for the brave investor

By Paul Hill Nov 06, 2009

Paul Hill

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One obvious trend in these more austere times is the rise in crime and the need for security specialists to protect cash and other valuables. This is where Brinks steps in.

The company was founded in 1859 and rose to prominence back in 1983 when it was the victim of Britain's largest ever heist – six armed robbers stole 6,800 gold bars worth £25m from a warehouse at London's Heathrow Airport. However, 25 years on Brinks is back in fine fettle and has delivered impressive 14% annual sales growth since 2004.

It's now the world's largest operator of armoured transportation, security personnel and cash-point refill services for banks, retailers and government organisations. Brinks enjoys a 19% share of the $14.5bn global secure logistics market, competing against the likes of G4S (15%), Loomis (10%) and Prosegur (8%).

Brinks Company Inc (NYSE: BCO)

Brinks operates internationally and has a particularly strong presence in the fast-growing South America region, which accounts for 28% of turnover.

Wall Street is forecasting 2009 revenues and underlying earnings per share of $3.1bn and $1.87 respectively, rising to $3.3bn and $2.14 in 2010. This puts the stock on attractive p/e multiples of 13.2 and 11.5 for this year and next. I rate the stock on a ten-times Ebita multiple, assuming a conservative 6% margin. After deducting $34m of net debt, $173m of retirement and $245m of healthcare liabilities, that suggests an intrinsic worth of about $30 a share.

But before piling in, investors should be be aware of some potential hazards.  British investors should watch out for foreign-exchange fluctuations. Brinks is also exposed to the usual pitfalls associated with bidding for and running government contracts. Current performance is being buffeted by the poor economic outlook, which includes a severe contraction in the diamond and jewellery trades, and a stronger dollar (70% of sales are outside the US).

Yet with an excellent franchise, decent profit visibility from long-term relationships and the added bonus of central banks printing vast new quantities of cash that needs protecting, today's price looks attractive for the braver investor.

Recommendation: BUY at $24.80

• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments

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