2012 | 2013 | ||||||
Price: | 27.09 | EPS | $0.00 | $3.31 | |||
Shares Out. (in M): | 49 | P/E | 0.0x | 9.0x | |||
Market Cap (in $M): | 1,319 | P/FCF | 25.0x | 13.0x | |||
Net Debt (in $M): | 1,009 | EBIT | 230 | 275 | |||
TEV ($): | 2,319 | TEV/EBIT | 10.0x | 8.4x |
Brink's has somewhere between 30-60% upside from current prices, at which point it would trade for ~9-12% FCF yield based on 2014 financials, with a rationalization in North American operations; realization of the masked value of the Company’s Latin American operations; waning concern over the displacement of physical currency with digital wallets; and, better understanding of the Company’s opaque business and financials. Additionally, the Company faces pressure from Shamrock to pursue strategic alternatives. |
Income Statement |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
Revenue |
$2,735 |
$3,164 |
$3,136 |
$3,122 |
$3,886 |
$ 4,193 |
$4,494 |
$4,760 |
% chg |
16% |
-1% |
0% |
24% |
8% |
7% |
6% |
|
Gross Profit |
$540 |
$658 |
$601 |
$585 |
$711 |
|||
Gross Margin |
20% |
21% |
19% |
19% |
18% |
|||
SG&A |
$379 |
$430 |
$434 |
$439 |
$540 |
|||
Foreign Pension |
$ (10) |
$ (10) |
$ (10) |
|||||
Noncontrolling interest |
$ (25) |
$ (25) |
$ (25) |
|||||
Adj EBIT |
$ 178 |
$ 219 |
$ 158 |
$ 167 |
$ 189 |
$ 218 |
$ 275 |
$ 432 |
EBIT Margin |
6.5% |
6.9% |
5.0% |
5.3% |
4.9% |
5.2% |
6.1% |
9.1% |
Interest expense |
$11 |
$12 |
$11 |
$15 |
$24 |
$26 |
$28 |
$29 |
Interest and other income |
$11 |
$8 |
$11 |
$8 |
$9 |
$10 |
$11 |
$11 |
Pre-tax profit |
$161 |
$225 |
$166 |
$140 |
$156 |
$ 202 |
$ 258 |
$ 414 |
Taxes |
$60 |
$53 |
($61) |
$67 |
$59 |
$77 |
$98 |
$157 |
Income from continuing operations |
$101 |
$172 |
$227 |
$73 |
$97 |
$125 |
$160 |
$257 |
Shares out |
47 |
46.7 |
47.5 |
48.4 |
48.1 |
48.3 |
48.3 |
48.3 |
EPS |
1.67 |
2.82 |
4.11 |
1.17 |
1.52 |
2.59 |
3.31 |
5.32 |
Free Cash Flow |
||||||||
NOPAT |
$ 112 |
$ 167 |
$ 215 |
$ 87 |
$ 117 |
$ 126 |
$ 161 |
$ 259 |
D&A |
$ 110 |
$ 122 |
$ 135 |
$ 137 |
$ 162 |
$ 172 |
$ 182 |
$ 184 |
Change in Working Capital |
$ 33 |
$ (11) |
$ (2) |
$ (6) |
$ (6) |
$ (1) |
$ 45 |
$ 31 |
Capex |
$ (142) |
$ (165) |
$ (171) |
$ (149) |
$ (196) |
$ (206) |
$ (211) |
$ (186) |
Capex (Maintenance) |
$ (110) |
$ (122) |
$ (135) |
$ (137) |
$ (162) |
$ (172) |
$ (182) |
$ (184) |
Capital Leases |
$ - |
$ - |
$ (13) |
$ (34) |
$ (43) |
$ (5) |
||
Capex / Sales |
-5.2% |
-5.9% |
-5.9% |
-6.2% |
-5.0% |
-4.7% |
-3.9% |
|
FCFF |
$ 113 |
$ 113 |
$ 178 |
$ 69 |
$ 78 |
$ 90 |
$ 176 |
$ 287 |
FCFF (Maintenance) |
$ 145 |
$ 156 |
$ 214 |
$ 81 |
$ 112 |
$ 125 |
$ 205 |
$ 289 |
FCFF Yield |
5% |
5% |
8% |
3% |
3% |
4% |
8% |
13% |
FCFF Yield (Maintenance) |
6% |
7% |
9% |
4% |
5% |
5% |
9% |
13% |
ROIC |
||||||||
Invested Capital |
$ 1,258.0 |
$ 1,544.50 |
$ 1,662.10 |
$ 1,702 |
$ 1,686 |
$ 1,657 |
||
ROIC |
17.1% |
5.6% |
7.1% |
7.4% |
9.5% |
15.6% |
|
Competitors: Brink’s competes with Prosegur, Cometra (private), Loomis, G4S and Garda in the CIT industry to varying degrees by geography. It is most instructive to segment Brink’s competition into the following geographic classifications: North America, Latin America, and EMEA. North America: The Company competes primarily with Loomis, Garda and Dunbar in the United States. Pricing is extremely competitive. In Canada, its’ competitors are Garda and G4S. Prior to Garda’s entry into Canada, G4S and Brink’s enjoyed a stable, oligopolistic pricing structure. Latin America: Brink’s competes primarily with Prosegur and Cometra in Latin America. Pricing has not been as much of a factor because of the greater importance placed on risk and access to second tier cities. The competitive landscape in the region will be a critical future determinant of Brink’s success given the attractive margins and returns generated in the region. EMEA: The Company competes with G4S, Loomis and Prosegur in the EMEA region. EBIT margins have dropped from 7% to 4% for Brink’s. All of Brinks’ competitors have superior margins with G4S and Loomis having 10%+ margins in Europe. Margins and returns in the region are generally higher than NA as a result of greater bank outsourcing.
Suppliers: There are numerous manufacturers of armored cars including Streit Manufacturing, Stoof and Mercedes among others. Typically, a manufacturer starts with an off-the-shelf automobile, such as the Ford E350. Labor is 52% unionized, but that’s driven by foreign markets. The workforce in the US is ~25% unionized.
Customers: Banks: Banking customers, especially large ones, typically only deal with the large CIT companies. First, these customers like to be able to leverage the national footprint of the large CIT companies. Second, a few high profile loss and fraud cases have focused these customers more intently on risk management. Despite a smaller pool of CIT suppliers in North America, pricing has been extremely competitive given the excess capacity and an increasingly consolidated banking industry. Additionally, in North America, banks have largely finished building out their branch and ATM networks, removing a previous tailwind. A significant source of potential upside could come from “virtual vaulting,” a service whereby banks would use Brink’s and its’ competitors to manage their vaults. While this practice is nearly universal in Europe, only about 20% of vault management is outsourced in the United States. Two banks would never pool vault space, but they may use Brink’s who could put all the assets in a single vault. In Latin America, the use of banks and ATMs should have a long road of growth ahead. Retailers: Retail customers are almost exclusively fixated on price. Additionally, these customers have cut back the number of service days per week from 6 to 2-4 as the cost of holding cash is low and depositing physical checks electronically is now possible.
Economics:
The economics vary widely by geography depending on competition, market maturity and regulation among other factors, but we believe this is inherently a low teens ROIC business in mature markets given most companies achieve this in all but the North American market and many have stated higher hurdles (G4S has a 12.5% ROIC hurdle rate). In North America, Brink’s is breakeven. Loomis earns a mid-single digit return on capital, while Garda generates a 14%+ ROIC. Although Garda’s metropolitan density partly explains superior economics, the Company may be underinvesting in its’ fleet given the low levels of capex relative to D&A in recent years and what we learned from VAR. Higher nominal GDP benefits the Company through higher growth and inflation pass-through. Rising real rates also help the Company as the rising cost of holding cash entices customers to utilize Brink’s more frequently.
Subject | Longer term thoughts based on FY 2012 |
Entry | 02/01/2013 10:20 AM |
Member | rab |
Margin goals of 10% seem a bit too optimistic don't you think? Management is clearly defending itself aggressively given Shamrock's "letter" written in late 2012? Thoughts on how this plays out (i.e., has the company's continued poor execution made it more vulnerable to consolidation?) |