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BRINKS CO BCO
November 28, 2012 - 1:11pm EST by
xanadu972
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

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  • Professional Services
  • Spin-Off
 

Description

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.
 
Note: My financials are substantially different than reported headline numbers as I make adjustments for pension (including adjusting the assumed rate of return downward) and United Mine Worker obligations. In addition, I allocate most of the "unallocated" expenses to the North American segment given this is where many of the legacy assets were based (Pittston Coal, Brink's Home Security..)
 

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%
 

 

  • North American rationalization:  The CIT business in North America should have a dramatic rationalization in the next few years, a change decades in the making.  Brink’s and much of the industry has not earned an appropriate return on capital for North American assets.  The industry is plagued by as much as 30% excess capacity.  Competitor Garda in particular has priced aggressively to gain share.  Despite the long persistence of these corrosive industry dynamics, I believe change could be afoot.  Garda has been purchased by private equity which might be a portent of more rational pricing competition.  There is evidence Garda has significantly underinvested in its trucks both in its financials (capex has averaged ~2/3 of D&A for the last three years) and from industry sources.  Additionally, Brink’s ousted its CEO last year, who had been sanguine about cutting costs.  Since Brinks’ trucks are 40% more productive on a revenue basis than those of Garda, I believe that Brinks’ underperformance is a result of bloated costs, not a broken business. The Company acknowledged that Garda “is beating our butts” so Brink’s must more proactively address its cost structure.   The prior CEO, the Company now admits, may have been wrong about Brink’s depressed economics simply being cyclical rather than structural.  The current CEO has announced cost and capex cuts.  These have been a long time coming as Brink’s failed to rationalize its cost structure after spinning of its hugely profitable alarm business.
  • Latin America hidden value:    Investors do not accord enough attention to this segment, as Brink’s does not directly disclose that it generates ~65% of EBIT (by my estimate).  Here are estimates of the Company's revenue and EBIT exposure by geograph
  • Geographic Mix 2007 2008 2009 2010 2011 2012 2013 2014
    % of Revs                
    North America 32.4% 29.5% 28.5% 29.4% 25.1% 23.5% 22.1% 21.1%
    Latin America 21.7% 25.3% 28.9% 28.1% 37.6% 40.8% 43.7% 46.3%
    EMEA 43.6% 42.9% 40.1% 38.4% 33.4% 31.5% 29.7% 28.1%
    Asia-Pac 2.3% 2.3% 2.5% 4.1% 4.0% 4.2% 4.4% 4.6%
    % of EBIT                
    North America 11.6% 3.7% 11.7% 4.1% -3.2% 9.0% 10.8% 16.3%
    Latin America 43.0% 57.3% 69.3% 57.6% 65.7% 70.6% 67.9% 66.2%
    EMEA 45.3% 39.0% 19.0% 34.1% 32.8% 30.3% 26.7% 20.1%
    Asia-Pac 0.0% 0.0% 0.0% 4.2% 4.8% 6.1% 7.2% 5.6%

    In late 2010, Brink’s purchased the remaining 80% of Serpaprosa, its’ Mexican operation, that it didn’t previously own.  This operation could contribute an incremental $55-70mln in EBIT assuming normalized operating margins of 12%.  Historically, underinvestment and related party transactions caused this business to barely breakeven.   The former underinvestment is reflected in the fact that the avg age of its’ trucks was 10.5 years old as of mid-2011 versus a 6-12 year life.  Brinks’ Mexican partners were banks who had little incentive to price appropriately or run the operation efficiently. Importantly, Brink’s is one of the few international competitors allowed to operate in Mexico and Brazil because its operations in both countries pre-dates laws banning foreign firms from owning companies that are allowed to carry deadly weapons. Brink’s was only allowed to consolidate its Mexican ownership, despite a 1973 law banning foreign ownership of security firms, because its original stake was purchased in 1965. Comparing forecasts for Brinks' Latin American operation to both its own history and Prosegur, one can see that forecasted improvements in Latin America are not particularly heroic.
Brink's Latin America 2007 2008 2009 2010 2011 2012 2013 2014
Revenue  $        594  $        801  $        905  $        877  $     1,461  $     1,709  $     1,966  $     2,202
EBIT  $          76  $        125  $        109  $          96  $        124  $        154  $        187  $        286
EBIT Margin 13% 16% 12% 11% 9% 9% 10% 13%
incremental   24% -16% 46% 5% 12% 13% 42%
NOPAT    $          78  $          68  $          60  $          77  $          95  $        116  $        177
Invested Capital      $        179  $        305  $        349  $        462  $        531  $        595
ROIC     37.7% 19.6% 22.1% 20.6% 21.8% 29.8%
                 
                 
Prosegur Latin America     2010 2011      
Revenue        $     1,666  $     2,110      
EBIT        $        225  $        304      
EBIT Margin       13.5% 14.4%      
incremental         17.9%      
NOPAT        $        139  $        213      
Net Working Capital        $          94  $        132      
Non-current Assets        $        416  $        473      
Invested Capital        $        510  $        605      
Assets        $     1,249  $     1,657      
ROIC       27.3% 35.2%      
 
  • Overly hyped displacement by electronic wallets:  Despite the growth of credit cards and PayPal-type transactions, Brink’s has been less exposed to this headwind than many realize.  In the US, from 1990 through 2011, debit, electronic check, and check transactions have changed by +2,700%, +680%, and -50%, respectively.  During this time, cash volumes have grown 4%/year, well above the 2.4% real GDP growth rate and close to the 4.7% nominal GDP growth rate.  While statistics are imprecise (due to large quantities of US$s abroad), it appears that the stock of cash in circulation within the US has averaged ~3.6% of GDP from 2004-2009, up from ~3.2% of GDP in 1990s, a data point unknown to many because of previous less precise calculations. 
  • Opacity of the business and financials: Brinks’ financials and business are opaque at best. Between spin-offs, foreign JVs and legacy pension and mine worker obligations, it takes some effort to get an accurate picture of the Company’s current financial condition and business performance.
 

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. 

I hold a position with the issuer such as employment, directorship, or consultancy.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

Continued cost cuts.
 
Potential sale.
    sort by    

    Description

    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.
     
    Note: My financials are substantially different than reported headline numbers as I make adjustments for pension (including adjusting the assumed rate of return downward) and United Mine Worker obligations. In addition, I allocate most of the "unallocated" expenses to the North American segment given this is where many of the legacy assets were based (Pittston Coal, Brink's Home Security..)
     

    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%
     

     

    • North American rationalization:  The CIT business in North America should have a dramatic rationalization in the next few years, a change decades in the making.  Brink’s and much of the industry has not earned an appropriate return on capital for North American assets.  The industry is plagued by as much as 30% excess capacity.  Competitor Garda in particular has priced aggressively to gain share.  Despite the long persistence of these corrosive industry dynamics, I believe change could be afoot.  Garda has been purchased by private equity which might be a portent of more rational pricing competition.  There is evidence Garda has significantly underinvested in its trucks both in its financials (capex has averaged ~2/3 of D&A for the last three years) and from industry sources.  Additionally, Brink’s ousted its CEO last year, who had been sanguine about cutting costs.  Since Brinks’ trucks are 40% more productive on a revenue basis than those of Garda, I believe that Brinks’ underperformance is a result of bloated costs, not a broken business. The Company acknowledged that Garda “is beating our butts” so Brink’s must more proactively address its cost structure.   The prior CEO, the Company now admits, may have been wrong about Brink’s depressed economics simply being cyclical rather than structural.  The current CEO has announced cost and capex cuts.  These have been a long time coming as Brink’s failed to rationalize its cost structure after spinning of its hugely profitable alarm business.
    • Latin America hidden value:    Investors do not accord enough attention to this segment, as Brink’s does not directly disclose that it generates ~65% of EBIT (by my estimate).  Here are estimates of the Company's revenue and EBIT exposure by geograph
    • Geographic Mix 2007 2008 2009 2010 2011 2012 2013 2014
      % of Revs                
      North America 32.4% 29.5% 28.5% 29.4% 25.1% 23.5% 22.1% 21.1%
      Latin America 21.7% 25.3% 28.9% 28.1% 37.6% 40.8% 43.7% 46.3%
      EMEA 43.6% 42.9% 40.1% 38.4% 33.4% 31.5% 29.7% 28.1%
      Asia-Pac 2.3% 2.3% 2.5% 4.1% 4.0% 4.2% 4.4% 4.6%
      % of EBIT                
      North America 11.6% 3.7% 11.7% 4.1% -3.2% 9.0% 10.8% 16.3%
      Latin America 43.0% 57.3% 69.3% 57.6% 65.7% 70.6% 67.9% 66.2%
      EMEA 45.3% 39.0% 19.0% 34.1% 32.8% 30.3% 26.7% 20.1%
      Asia-Pac 0.0% 0.0% 0.0% 4.2% 4.8% 6.1% 7.2% 5.6%

      In late 2010, Brink’s purchased the remaining 80% of Serpaprosa, its’ Mexican operation, that it didn’t previously own.  This operation could contribute an incremental $55-70mln in EBIT assuming normalized operating margins of 12%.  Historically, underinvestment and related party transactions caused this business to barely breakeven.   The former underinvestment is reflected in the fact that the avg age of its’ trucks was 10.5 years old as of mid-2011 versus a 6-12 year life.  Brinks’ Mexican partners were banks who had little incentive to price appropriately or run the operation efficiently. Importantly, Brink’s is one of the few international competitors allowed to operate in Mexico and Brazil because its operations in both countries pre-dates laws banning foreign firms from owning companies that are allowed to carry deadly weapons. Brink’s was only allowed to consolidate its Mexican ownership, despite a 1973 law banning foreign ownership of security firms, because its original stake was purchased in 1965. Comparing forecasts for Brinks' Latin American operation to both its own history and Prosegur, one can see that forecasted improvements in Latin America are not particularly heroic.
    Brink's Latin America 2007 2008 2009 2010 2011 2012 2013 2014
    Revenue  $        594  $        801  $        905  $        877  $     1,461  $     1,709  $     1,966  $     2,202
    EBIT  $          76  $        125  $        109  $          96  $        124  $        154  $        187  $        286
    EBIT Margin 13% 16% 12% 11% 9% 9% 10% 13%
    incremental   24% -16% 46% 5% 12% 13% 42%
    NOPAT    $          78  $          68  $          60  $          77  $          95  $        116  $        177
    Invested Capital      $        179  $        305  $        349  $        462  $        531  $        595
    ROIC     37.7% 19.6% 22.1% 20.6% 21.8% 29.8%
                     
                     
    Prosegur Latin America     2010 2011      
    Revenue        $     1,666  $     2,110      
    EBIT        $        225  $        304      
    EBIT Margin       13.5% 14.4%      
    incremental         17.9%      
    NOPAT        $        139  $        213      
    Net Working Capital        $          94  $        132      
    Non-current Assets        $        416  $        473      
    Invested Capital        $        510  $        605      
    Assets        $     1,249  $     1,657      
    ROIC       27.3% 35.2%      
     
    • Overly hyped displacement by electronic wallets:  Despite the growth of credit cards and PayPal-type transactions, Brink’s has been less exposed to this headwind than many realize.  In the US, from 1990 through 2011, debit, electronic check, and check transactions have changed by +2,700%, +680%, and -50%, respectively.  During this time, cash volumes have grown 4%/year, well above the 2.4% real GDP growth rate and close to the 4.7% nominal GDP growth rate.  While statistics are imprecise (due to large quantities of US$s abroad), it appears that the stock of cash in circulation within the US has averaged ~3.6% of GDP from 2004-2009, up from ~3.2% of GDP in 1990s, a data point unknown to many because of previous less precise calculations. 
    • Opacity of the business and financials: Brinks’ financials and business are opaque at best. Between spin-offs, foreign JVs and legacy pension and mine worker obligations, it takes some effort to get an accurate picture of the Company’s current financial condition and business performance.
     

    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. 

    I hold a position with the issuer such as employment, directorship, or consultancy.
    Neither I nor others I advise hold a material investment in the issuer's securities.

    Catalyst

    Continued cost cuts.
     
    Potential sale.

    Messages

    SubjectLonger term thoughts based on FY 2012
    Entry02/01/2013 10:20 AM
    Memberrab
    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?)
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