Tuesday tips round-up: G4S, Senior

22nd Oct 2013 07:56

Come the fifth of November, while most of the UK is watching fireworks, recently installed G4S Chief Executive Ashley Almanza will be presenting his new strategy. The company needs to get a handle on its gearing. Even after a 350m pounds share placing over the summer, and smaller disposals, net debt is likely to be about 2.5 times earnings before interest, tax, depreciation and amortisation (EBITDA) at the end of the year. Should reports of a sale of its cash solutions business - for 1bn pounds - then that may come down to one times, but at a steep price. The 110m pounds of lost annual earnings is more than the interest that would be saved. Furthermore, the price suggests a valuation that is below G4S's shares' rating of 15 times forecast earnings. In the event, no offer may be forthcoming, so it would probably be best for Almanza to stick with what is within his grasp. The first is improving cash flow. The second is financial control. Last year G4S was embarrassed by cost overruns on a contract to guard the London Olympics. This year it has been embarrassed by accusations that it overcharged the government on offender-monitoring contracts. Both suggest a company that has, in the past, focused on top-line growth but neglected the details. A one-off £180m charge to cover asset impairments and other items, taken at the half-year stage, at least suggests that Almanza is likely to take a tight hold of the finances, even if that means the new strategy lacks fireworks, the Financial Times' Lex column says. Despite some analysts' reservations regarding foreign exchange headwinds, engineer Senior is in an enviable position. A third of earnings come from commercial aircraft, such as the Airbus A350 and the Boeing Dreamliner, and these have order books that stretch forward more than eight years. Today and tomorrow the company is taking analysts around its Weston facility in Lancashire, a well-timed purchase in 2011. The company has a Thai factory that is running at high capacity and any news on this could spur some interest in the shares. The recovery in the American lorry market, which had been widely predicted for the second half, has yet to materialise, although recent signs are that orders are picking up, even if the continuing US debt crisis has hit some of its military sales. The eventual recovery of the American truck market will go some way to mitigating those forex headwinds. "The shares, up 4.75p at 280.5p on Monday, have been treading water since I last looked at them in the summer. They sell on 15 times' this year's earnings. They look attractive in the long term for that exposure to civil aerospace," The Times' Tempus explains.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB