UK And Euro Area Cash Resurgence And Forex Expansion Will Strengthen Future Outlook

Key Takeaways

• Prosegur Cash is poised for revenue growth through cash resurgence and strategic expansion into high-demand services like Forex and transformation products.
  
• Improved profitability and earnings stability are supported by operational efficiency, reduced leverage, and a focus on shareholder returns through buybacks and dividends.
  
• Economic conditions and strategic challenges, including unfavorable currency impacts and cost pressures, could hinder Prosegur Cash's growth and margin sustainability if not effectively managed.

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.

• The resurgence in cash usage across mature markets like the UK and the euro area indicates an operational strength and potential revenue growth for Prosegur Cash, as increased cash utilization means sustained or growing demand for cash handling services.
  
• The company's transformation efforts, particularly in Asia Pacific, have led to profitability and strong performance growth, which can enhance revenue and improve net margins due to operational efficiencies and service diversification.
  
• A significant focus on reducing leverage with strategic management of net debt (current ratio at 2.3x), alongside disciplined cash flow management, suggests improved net margins and more stable earnings due to lower interest expenses.
  
• Prosegur Cash's strategic expansion into foreign exchange services (Forex) and comprehensive transformation products (accounting for 32.2% of sales) positions the company for revenue growth and improved earnings as these high-demand offerings mature and drive higher profitability.
  
• Commitment to shareholder returns through buybacks and increased dividends indicates a focus on enhancing earnings per share (EPS), with the potential for higher stock valuation as they continue to improve financial health and returns on equity.

Prosegur Cash Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Prosegur Cash's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 4.8% in 3 years time.
• Analysts expect earnings to reach €116.0 million (and earnings per share of €0.08) by about March 2028, up from €89.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, down from 11.6x today. This future PE is lower than the current PE for the GB Commercial Services industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.45%, as per the Simply Wall St company report.

Prosegur Cash Future Earnings Per Share Growth

Risks

• The company has experienced negative foreign exchange impacts, which have reduced overall revenue growth. This continued exposure could affect net margins in the future if currency fluctuations remain unfavorable.
  
• The ongoing investment in ForEx expansions and restructuring initiatives, like in Australia, has placed pressure on profitability, indicating risks in net earnings from delayed benefits or unforeseen costs associated with these efforts.
  
• The German strike and subsequent tariff negotiation challenges highlight labor cost pressures that could impact margins adversely if similar events occur in the future or if full cost pass-through to customers isn't achieved.
  
• The focus on reducing debt levels may limit the ability to reinvest in growth opportunities or return capital to shareholders, potentially hindering net profit growth and shareholder returns if not balanced appropriately.
  
• The plan to maintain organic and inorganic growth while controlling costs amidst economic conditions, particularly in regions like Argentina, relies heavily on successful cost transfer to customers and economic stability, posing risks to revenue continuity and margins if these conditions falter.

Valuation

• The analysts have a consensus price target of €0.729 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 €2.4 billion, earnings will come to €116.0 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 11.5%.
• Given the current share price of €0.7, the analyst price target of €0.73 is 3.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.