Contract wins maintain growth at G4S

Security services company G4S (GFS) received a warm reaction on the markets to its first-quarter figures, which show a rise in overall revenues and organic growth expectations following contract wins.

Overall revenues in the three months to the end of March grew 4.7% at constant exchange rates compared to the same period last year, and grew 3.8% at actual exchange rates. The group operating margin was slightly lower.

Overall organic growth was 4%, with new markets growth at 8% and developed markets at 2%, while cash solutions saw a dip of 1%.

Previously announced contract losses in Romania and South Africa had a negative impact. But the company is the official security provider for the 2012 Olympics and said it was confident it could win further UK government contracts this year.

"As expected, organic growth has started to improve in developed secure solutions markets and strong organic growth continues in developing markets. Based on recent contract awards and our bid pipeline, we expect the organic growth rate to continue to improve during 2011," the company said.

Analyst view

Kevin Lapwood at Seymour Pierce said he was making no change to estimates on the back of the firm's statement and retained a 'buy' recommendation with a target price of 320p.

Mike Allen and Paul Jones at Panmure Gordon are also buyers, but added in a note: "We are leaving our full-year forecasts unchanged post this update, as the top line growth is slightly stronger than we anticipated and should negate the margin weakness.

"Our target price of 315p implies 15% upside potential, coupled with a 3% yield, which implies a 'buy' recommendation at current levels."

Meanwhile, Julian Cater and James Gilbert at Collins Stewart also retained a 'buy' rating with a 300p target, but said they preferred Capita (CPI) and Serco (SRP).