Spanish Based Security Company Prosegur Is Growing Sales And Has High Profit Margins

| About: Prosegur Cia (PGCSF)

Summary

The stock is down because of concerns in Latin America.

Prosegur has shown better numbers than many of its peers.

The stock is a new holding of Third Avenue.

Prosegur Cia De Securidad SA (OTC:PGCSF, OTC:PGCSY) is a Spanish based security company with high profit margins and growing sales. The stock is down due to concerns in Latin America, which is where the company derives much of its income.

The company has 617 million shares and trades at a market cap of €2.44 billion($2.66 billion). It takes $1.09 to buy one euro. Earnings per share in 2014 were €0.2654 and the stock trades at a price to earnings ratio (based on last year's earnings) of 14.92.

Sales were €3.782 billion ($4.122 billion) in 2014 and Ebitda was €425.7 ($464 million). Not surprisingly, the Ebitda margins are quite high at 11.3%. Profit margins are often high for service companies like Prosegur. Sales were up 2.4% from 2013. Free cash flow was €125 million and the free cash flow yield was 5.1%.

The balance sheet is very solid with €949 million ($1.034 billion) in accounts receivable and €285 million ($310 million) in cash. This is to €681 million ($742 million) in accounts payable and €963 million ($1.049 billion) in debt. Moody's rates their debt Baa2.

The company is controlled by Gubel S.L. which holds a little over 50% of the stock. Gubel is owned by Helena Revoredo Delvecchio whose late husband founded Prosegur. Delvecchio is chairman of the board. I got the idea to write this piece from reading Third Avenue's Annual Report. Third Avenue points out the high profit margins and an improving economy in Latin America.

Prosegur has put up some great growth numbers over the last several years while not diluting share holders with secondary offerings. Revenues were €2.052 billion ($2.24 billion) in 2008 and grew to €3.782 billion ($4.122 billion) in the most recent year. That's impressive growth! Gross margins have been around 22% and operating margins 8% to 10%. Return on equity has been between 21% and 29%. Very impressive for a company that I have never heard of!

In the latest quarter, Europe and Asia accounted for 40% of sales. Latin America accounted for 60%. Latin American currencies caused a negative impact of 1.5%. Security accounted for 50% of sales, cash in transit 44.4%, and alarms 5.3%. This web site lists Prosegur as one of the 30 most important security companies in the world.

Let's look at a comparable competitor, G4S (OTCPK:GFSZF, OTCPK:GFSZY), to get some numbers. G4S's sales and income has not grown like Prosegur's. Sales were £7 billion ($10.15 billion) in 2009 and have shrunk to £6.848 billion ($9.93 billion) in 2014. It takes $1.45 to buy one pound. Operating margins are in the mid single digits. Less growth and less profitable than today's subject.

Brink's (NYSE:BCO) has shown better growth than G4S. Sales were $3.164 billion in 2008 and $3.562 billion in 2014. Gross margins have been in the high teens. Still, not as good as Prosegur. When "Googling" Prosegur, most of the news is in Spanish. Very strange that there is not more news in English for a company of this size.

No doubt Latin America is spooking potential investors. However, common sense says that this company should do well in this region. With all of the problems in Mexico and other countries south of the border, it makes sense that Prosegur ought to do well. Security, alarms, and cash transit should do well in these countries. The worse the economies get, the more security you will need to protect the cash you do have.

I like this stock. I had never heard of it until recently. Margins are high and sales have been growing. I'm going to continue to follow it. Prosegur has done better than its peers and seems to be forging ahead.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.