CashToday And Emerging Markets Will Shape Future Business Opportunities

Key Takeaways

• Sustained cash use in key markets and emerging regions supports potential revenue growth and long-term expansion.
  
• Strong organic growth and financial improvements enhance profitability prospects through reduced debt and transformation initiatives.
  
• Currency volatility in Latin America, particularly Argentina, and restructuring costs could hinder revenue, EBITDA margins, and financial leverage reductions.

Catalysts

Provides cash cycle management solutions and automating payments in retail establishments, ATM management for financial institutions, retail establishments, business, government agencies, central banks, mints, and jewellery stores.

• Increasing cash withdrawals in key markets like Spain and Germany indicate a sustained relevance of cash, suggesting potential revenue growth from increased service demand as consumers continue to use cash.
  
• Continued strong organic growth, projected at mid-to-high single digits across regions, indicates underlying business health and potential revenue expansion.
  
• Ongoing transformation efforts, particularly through CashToday and forex business, which have seen double-digit growth and increased penetration, are likely to contribute positively to revenue and margins.
  
• Significant reduction in net financial debt and improved cash flow generation signal better financial health, potentially impacting net margins positively due to lower interest expenses.
  
• Growth opportunities in emerging markets, as seen in the significant cash usage in Latin America, could provide long-term revenue expansion as these economies develop.

Prosegur Cash Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Prosegur Cash's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 7.1% in 3 years time.
• Analysts expect earnings to reach €167.7 million (and earnings per share of €0.12) by about February 2028, up from €64.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, down from 13.8x today. This future PE is lower than the current PE for the GB Commercial Services industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.05%, as per the Simply Wall St company report.

Prosegur Cash Future Earnings Per Share Growth

Risks

• Currency devaluation, especially in Argentina, continues to impact revenue and profitability negatively, which may affect overall earnings if similar currency issues arise in other markets.
  
• The restructuring costs in Australia and the initial expenses associated with opening new operations in the forex business have negatively impacted EBITDA margins, posing risks to net margins if these costs are not contained.
  
• Free cash flow generation improvements may be hampered by high-seasonal fluctuations and regional economic instability, which could limit the company’s ability to reduce financial leverage effectively.
  
• A significant proportion of sales are from transformation products, which require ongoing innovation and investment; failure to continue successful transformation initiatives could stagnate future revenue growth.
  
• The reliance on the Latin American market, which faces substantial currency volatility and economic challenges, poses a continued risk to stable revenue and profit generation.

Valuation

• The analysts have a consensus price target of €0.696 for Prosegur Cash based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €0.98, and the most bearish reporting a price target of just €0.53.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.3 billion, earnings will come to €167.7 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 12.0%.
  
• Given the current share price of €0.6, the analyst price target of €0.7 is 14.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.