Traditional Security Will Decline While Digital Shift Offers Uneven Relief

Key Takeaways

• Declining demand for traditional services and cash management poses risks to revenue stability and profit margins amid industry shifts.
  
• Regulatory, labor, and debt-related challenges could hinder transition to tech-enabled offerings and limit investment in innovation.
  
• Strong global growth, effective cost pass-through, expanded technology adoption, and solid recurring cash flow drive financial resilience, margin expansion, and sustained long-term earnings.

Catalysts

Operates in the private security sector.

• As rapid advancements in AI and automation continue across the security industry, the demand for traditional physical guard services, which make up a core part of Prosegur's business, is likely to decline, putting long-term pressure on both revenue growth and operating margins.
  
• The ongoing shift toward cashless societies in key developed and emerging markets is set to reduce demand for Prosegur's cash-in-transit and cash management services, directly eroding a major revenue stream and threatening top-line stability over time.
  
• Heightened regulatory scrutiny and escalating concerns about privacy related to surveillance technologies could limit the adoption of Prosegur's tech-enabled security offerings, increasing compliance costs and potentially stalling the company's transition to higher-margin services, thereby curtailing future earnings growth.
  
• Lingering dependence on a labor-intensive operating model will expose Prosegur to sustained wage inflation and potential labor shortages, which would squeeze net margins and weigh on overall profitability despite recent cost-saving initiatives.
  
• The company's high debt load and capital-intensive operations may restrict its ability to invest in the innovation and digital transformation needed to keep pace with technology-first competitors, limiting improvements in margins and putting downward pressure on long-term earnings power.

Prosegur Compañía de Seguridad Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Prosegur Compañía de Seguridad compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Prosegur Compañía de Seguridad's revenue will grow by 3.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.8% today to 2.7% in 3 years time.
• The bearish analysts expect earnings to reach €150.4 million (and earnings per share of €0.23) by about July 2028, up from €89.7 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 bearish analyst cohort, the company would need to trade at a PE ratio of 7.4x on those 2028 earnings, down from 16.0x today. This future PE is lower than the current PE for the GB Commercial Services industry at 14.8x.
• 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 11.1%, as per the Simply Wall St company report.

Prosegur Compañía de Seguridad Future Earnings Per Share Growth

Risks

• The company continues to generate strong organic growth across all regions, with particular strength in the US and APAC, which supports long-term top-line revenue expansion as global demand for security solutions rises.
  
• Prosegur is successfully passing through inflationary cost pressures to customers through price increases, demonstrating commercial discipline that helps protect and potentially enhance profit margins and earnings.
  
• The business is increasingly leveraging technology and transformation products, particularly in the Security division, which contributes to higher-margin sales and improves operational efficiencies, positively impacting EBITA and future net margins.
  
• All business units, including Cash, Security, and Alarms, are now contributing positively to cash flow, enabling effective deleveraging and improving the company's financial resilience and capacity to reinvest in growth, which strengthens earnings stability.
  
• Recurring cash flow is growing at a healthy double-digit pace, underpinned by rising service margins, expanding customer bases, and robust churn management in the Alarm business, supporting steady increases in recurring earnings and long-term shareholder value.

Valuation

• The assumed bearish price target for Prosegur Compañía de Seguridad is €1.9, which represents two standard deviations below the consensus price target of €3.14. 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 more bearish 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 €1.9.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €5.6 billion, earnings will come to €150.4 million, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 11.1%.
  
• Given the current share price of €2.7, the bearish analyst price target of €1.9 is 42.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.