Emerging Markets And AI Integration Will Drive Security Service Growth

Key Takeaways

• Structural gains from technology-driven transformation, cost-saving initiatives, and stabilization in key markets position margins and profits for sustained above-consensus growth.
  
• Expansion into high-growth regions and integration of advanced security platforms support long-term revenue outperformance and margin accretion across business segments.
  
• Lagging digital transformation and over-reliance on traditional services, amid regional and operational risks, threaten Prosegur's growth, margins, and competitive positioning as industry dynamics shift.

Catalysts

Operates in the private security sector.

• While analyst consensus acknowledges the transformation products in the Cash business as a growth driver, it significantly understates the long-term impact: with transformation products already at 34% of Cash division sales and management executing a strategic cost-saving program with a rapid 1.5-year payback, the Cash division is poised for multi-year margin expansion and stable, higher-margin recurring revenues, which could drive sustained growth in EBITDA and net income beyond current expectations.
  
• Analysts broadly agree that the Security segment delivers impressive growth and margin gains due to successful price pass-through and volume, but they may underestimate the scale of positive operating leverage-recurring cash flows are now structurally positive and the group's geographical expansion in the United States and APAC, which are growing well above average, creates durable upside for future revenue and group-wide margin accretion.
  
• Prosegur's exposure to rapidly urbanizing emerging markets, where rising security and compliance needs are outpacing legacy providers, positions the company to capture a disproportionate share of new contracts arising from both private sector expansion and public sector outsourcing, fueling above-industry revenue growth over the long-term.
  
• The company's accelerated investment in proprietary technology platforms and integrated AI/IoT solutions across Security and Alarms is driving cross-selling and operational synergies, which-combined with declining acquisition costs post-2025-will likely yield a step-change in service margins and translate into robust net income growth.
  
• The normalization and stabilization of Argentina's macroeconomic environment has not only reduced the impact of hyperinflation on the financials but also sharply cut effective tax rates and improved dividend upstreaming, creating an ongoing structural lift to consolidated free cash flow and earnings that is not yet fully appreciated in the valuation.

Prosegur Compañía de Seguridad Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Prosegur Compañía de Seguridad compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Prosegur Compañía de Seguridad's revenue will grow by 6.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.1% today to 3.4% in 3 years time.
• The bullish analysts expect earnings to reach €207.4 million (and earnings per share of €0.39) by about August 2028, up from €104.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, up from 13.5x today. This future PE is greater than the current PE for the GB Commercial Services industry at 12.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.82%, as per the Simply Wall St company report.

Prosegur Compañía de Seguridad Future Earnings Per Share Growth

Risks

• The global shift toward digital and AI-driven surveillance, coupled with growing client preference for cybersecurity and cloud-based solutions, may diminish demand for Prosegur's traditional manned guarding and physical security services, posing a risk to long-term revenue growth as technological disruption accelerates.
  
• The company's ongoing heavy reliance on cash-in-transit operations, despite the secular decline in cash usage worldwide, exposes it to the risk of shrinking business in this segment, which could drag on both revenue and segment-level earnings in the coming years.
  
• Prosegur's relatively slow pace in digital transformation compared to more tech-advanced competitors may weaken its competitive positioning over time, potentially eroding market share and limiting its ability to sustain current revenue and profitability trends.
  
• High geographic concentration in Spain and Latin America leaves the company vulnerable to political instability and currency fluctuations in these markets, leading to potential earnings volatility and pressure on consolidated net margins, as evidenced by recent FX-related impacts and macroeconomic uncertainty in Argentina.
  
• Rising labor costs and wage inflation in developed economies, combined with intensifying competition from low-cost and technology-led disruptors, could increase operating expenses while driving down prices, compressing operating margins and restricting net income growth over the long term.

Valuation

• The assumed bullish price target for Prosegur Compañía de Seguridad is €4.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Prosegur Compañía de Seguridad's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €4.0, and the most bearish reporting a price target of just €2.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €6.0 billion, earnings will come to €207.4 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 11.8%.
  
• Given the current share price of €2.66, the bullish analyst price target of €4.0 is 33.6% 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.