An underwhelming third quarter update sends troubled service group G4S (GFS) down 3.2% to 246p ahead of a big presentation this afternoon to investors about future strategy. Margins remain under pressure and there's worries about a slowdown in the US.

Chief executive officer Ashley Almanza will tell attendees of today's 'Capital Markets' event that the business has strong fundamentals yet needs to 'sharpen' its strategic focus. It is looking at options including the sale of 35 businesses and will step up investment in customer service and organic growth where it has identified opportunities for 5% to 8% annual gains.

At first glance, this looks like a simple tidying up of the business rather than a new strategy. G4S has already flagged a £30 million to £35 million restructuring programme and willingness to sell operations, as illustrated by last week's £30 million sale of its Norwegian security interests. But last month's rejection of a £1.55 billion offer from Charterhouse Capital for its cash solutions business shows that Almanza doesn't want to break-up the group, merely trim it down.

Cash solutions is highlighted in today's statement as being a 'core service line' alongside its secure solutions business and operations in the care and justice sectors.

Cantor analyst Caroline de le Soujeole says the third quarter update is weaker than expected. She forecasts £358 million pre-tax profit this year. The consensus average is £329 million yet there's quite a wide range from £238 million to £376 million among analysts.

G4S achieved 4.8% organic growth in the three-month period. Emerging markets performance looks fine with 14% growth but there's challenging market conditions in Europe. It also says lower US federal government spending has affected its secure solutions and systems businesses in that market.

GFS - Comparison Line Chart (Actual Values)

Shares in G4S have been remarkably resilient over the past few months, despite the traumas of a probe into its UK government contracts. We expect analysts to update their models on the business over the next few weeks following today's investor presentation. Judging by the statement to the stockmarket on what will be discussed, it is hard to see major changes to earnings forecasts.

The stock is trading on 13.4 times prospective earnings for 2014. That looks high enough for a company clouded by reputation and contract issues. Investors will need to buy into the potential self-help story for the shares to start ascending once more. There's too many risks in our opinion to take that stance just yet.

Issue Date: 05 Nov 2013