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Brinks Co. (when issued) BCO*
October 25, 2008 - 11:57am EST by
beech625
2008 2009
Price: 19.75 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 900 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT

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Description

We believe there is an extraordinary dislocation in the value of Brink’s Inc (BCO).  The company is spinning off its Brink’s Home Security subsidiary on October 31, 2008. Both the parent and the spin are trading on a “when-issued basis”:  Brink’s Inc. under the BCO* ticker at a closing price of $19.75; and the home security business under the CFL* ticker at a closing price of $19.60.  The combined, pre-spin company trades “regular way” under the BCO ticker at a current price of $39.60.      

 

BCO will distribute one share of CFL common to the holder of each share of BCO’s common outstanding as of October 21, 2008. Each company will have about 46.6 million fully diluted shares outstanding following the spin.

 

We believe the opportunity in this transaction is in the stub BCO* (when-issued) shares and offers the potential for a double within a year.  For purposes of this write-up, I’ll provide a brief description of the business, valuation, and the catalyst.   


Brink's, Inc.
 
BCO* is a leading provider of security services around the world.  Specific services include:
  • Cash-in-transit ("CIT") armored car transportation
  • Automated teller machine ("ATM") replenishment and servicing
  • Global Services - arranging secure long-distance transportation of valuables
  • Cash Logistics - supply chain management of cash
  • Guarding services, including airport security
  • Secure Data Solutions - transporting, storing and destroying sensitive information

Customers include banks and financial institutions, retailers, government agencies, mints, jewelers and other commercial operators. The company operates in more than 50 countries and supported by about 800 facilities and 9,100 vehicles.  For convenience, I have hijacked the charts below from the company’s 10-K to show results over the past five years.
 



BCO* competes with large multinational, regional and smaller companies throughout the world including Group 4 Securicor plc (UK), Securitas AB (Sweden), Prosegur, Compania de Seguridad, S.A. (Spain) and Garda World Security Corporation (Canada).

Valuation

 

Since the stub is already trading on a when-issued basis, so we have an ascertainable “post-spin” value which is $19.75 per share. The table below illustrates the current valuation:

 

Current Price:                $19.60

FD Shares:                   46.6M

Market Capitalization:    $913.4M

LESS Cash:                  $196.0M

PLUS Debt:                  $179.4M

 

Enterprise Value:           $896.8

 

Using the most recent consensus 2009 EBITDA estimate of $390 million, the company has a forward EV/EBITDA multiple of 2.3x.  Of course Wall Street can be wildly optimistic with its estimates, particularly during difficult economic periods.  So to factor this in, I’ll provide a range of discounts to EBITDA and the resulting multiples below.

 

Discount           EBITDA            EV/EBITDA

10%                  $351M              2.55x

20%                  $312M              2.87x

30%                  $273M              3.28x

40%                  $234M              3.83x

50%                  $195M              4.60x

 

Over time, we believe a very reasonable multiple on this type of business is 7x, even in a difficult economic environment.  In any case, that is a number that would attract private equity (should the debt markets ever return).  Here’s how the potential upside works out using the EBITDA discounts and 7x:

 

Discount           Equity Value     Share Price       Upside

10%                  $2,473M            $53.08              171%

20%                  $2,200M            $47.22              141%

30%                  $1,927M            $41.36              111%

40%                  $1,638M            $35.51               81%

50%                  $1,382M            $29.65                51%

 

Risks

 

The Company has funded a VEBA trust to cover obligations related to its former coal business.  The Company may have to make additional contributions to fund the obligations.  In addition, the company is not completely immune to a deep global recession. However, the BCO business held up very well during the 2000-2002 period.

 

 

 

 

Catalyst

Completion of the spinoff on October 31st and hopefully more attention to the underlying value of the stand alone BCO.
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