ATM Agreements And Tech Investments Will Drive Future Productivity

Key Takeaways

• Brink's strategic focus on technology-enabled solutions and services aims to boost organic revenue and enhance net margins through strong demand and operational efficiency.
  
• Initiatives like ATM management agreements and a share repurchase program are set to improve scalability, reduce share count, and increase earnings per share.
  
• Currency devaluation, operational delays, and security losses pose significant challenges to Brink's revenue, earnings, and financial targets.

Catalysts

Provides secure transportation, cash management, and other security-related services in North America, Latin America, Europe, and internationally.

• Brink's expects to achieve mid-to-high-teens organic revenue growth in 2025, driven by technology-enabled solutions like AMS and DRS, indicating potential future revenue growth.
  
• The recent signing of an agreement with Sainsbury's to manage its ATMs is expected to drive increased route density, processing volume, and scale, thus supporting higher incremental margins for future earnings.
  
• Brink's strategic shift towards higher-margin AMS and DRS services is expected to enhance net margins, as these services continue to experience strong demand and growth.
  
• The implementation of a new routing system in North America, along with investments in data center migration and cybersecurity, is anticipated to improve operational efficiency and productivity, positively impacting future EBITDA margins.
  
• The company's ongoing share repurchase program, with $375 million in available capacity, is expected to reduce share count and enhance earnings per share (EPS) over time.

Brink's Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brink's's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 16.0% in 3 years time.
• Analysts expect earnings to reach $909.9 million (and earnings per share of $21.83) by about December 2027, up from $118.3 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 7.5x on those 2027 earnings, down from 33.6x today. This future PE is lower than the current PE for the US Commercial Services industry at 31.4x.
• Analysts expect the number of shares outstanding to decline by 1.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.45%, as per the Simply Wall St company report.

Brink's Future Earnings Per Share Growth

Risks

• The strengthening U.S. dollar and devaluation of the Mexican peso have created a significant FX headwind, negatively impacting revenue and high-margin geographies, which could continue to pose challenges for earnings.
  
• Company faced a $10 million security loss in the quarter, affecting EBITDA margins, reflecting vulnerabilities in their risk management profile that could impact future earnings if not addressed.
  
• Despite operational improvements, delays in rolling out a new routing system in North America have hindered productivity, potentially affecting revenue and net margins until fully resolved.
  
• The softer demand in the Global Services segment, due to high and stable precious metals prices, presents a risk to revenue and profit growth if volatility in metals markets does not pick up.
  
• Higher interest expenses and currency devaluation, such as the impact from the Mexican peso, are impacting free cash flow conversion from EBITDA, challenging the financial framework's long-term targets.

Valuation

• The analysts have a consensus price target of $130.5 for Brink's based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.7 billion, earnings will come to $909.9 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 8.4%.
• Given the current share price of $91.01, the analyst's price target of $130.5 is 30.3% 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.