The long-expected fundraising has been triggered by troubled security group G4S (GFS). It is now doing the rounds in the City to get the best price for issuing new shares representing nearly 10% of its existing share capital. Having initially fallen on the announcement, which coincides with half-year results, the shares are now trading up 0.2% at 245.8p.
The company needs the money to reduce stress on its balance sheet from high levels of borrowings. Net debt at the half-year stage was just under £2 billion. The money will be bolstered by £100 million of proceeds from selling two businesses: Canadian Cash solutions and Columbia Data solutions. It expects to raise a further £150 million from additional disposals including its US Government solutions operation and the regulated secure solutions business.
The market clearly likes the decisive action but analysts reckon the restructuring benefits won't start to feed through until 2014/2015.
As the business stands today, the performance isn't great. Half-year revenue from continuing operations grew by 7% to £3.6 billion, yet pre-tax profit fell by 8.1% to £136 million. Higher finance costs were mainly to blame. Organic growth is slower than many analysts had previously expected.
There's a lot to digest with the changing parts of the business, so analyst comment is fairly thin until after they've met with the company this morning. Ahead of the presentation, stockbroker Panmure Gordon says one particular area of interest is the impact of disposals on future earnings, particularly as it believes Cash Solutions generates 'an above average return on capital employed in some quarters'.
Investec places its forecasts and target price under review, albeit keeping a 'buy' rating on the stock. It comments: 'Traumas were expected, and much will now lean on the message struck by management this morning.'
Shares last wrote on G4S in early July, saying to sell at 226.8p as a short-term trade ahead of the results. While that was a good call as the stock subsequently fell to 207.5p, it is now bouncing back and the shares trade above our entry point. We'll revisit the investment case once there's more clarity on the future strategy.