Brink’s Stock: Too Early to Cash Out (NYSE:BCO)

In this market, it is truly amazing how quickly things can change. At the end of January this year, I wrote a article about a company called Brink’s Company (New York stock market :BCO). If you read This article has probably already shown you one of its armored trucks carrying cash. The company provides ATM management services, as well as digital retail solutions. That makes it an interesting type of company anyway. But when I reiterated my “buy” rating on the stock earlier this year, I didn’t think it would see a rally that would nearly double the broader market. See, since then, the stock is up 25.1% at a time when the S&P 500 is up 12.4%.

But that’s not the end of the story. My initial optimism article on the company has been published a year earlier, in January 2023. Based on the company’s overall fundamental health, as well as its overall trajectory, I had indicated that upside would be within reach for investors. And since then, the stock is up 91.9%, while the S&P 500 is up a much more modest, but still impressive, 43.6%. That tells me that easy money has certainly been made. But as surprising as it may be, I’m not ready to downgrade the stock just yet. Particularly relative to cash flow, the company appears to have an attractive valuation. This is true both on an absolute basis and relative to similar businesses. For that reason, I think it makes sense to keep it rated “Buy” at this point.

Brink’s Company Continues to Make Money

When I wrote about The Brink’s Company earlier this year, the data we had available extended through the third quarter of fiscal 2023. That data now extends through the first quarter of 2024. For the sake of completeness, I think it would be best to discuss how the company ended 2023. For this year, the company’s turnover amounted to $4.87 billion. This represents an increase of 7.5% compared to the $4.54 billion generated in 2022.

From an operational perspective, the majority of the company’s revenue comes from North America. This is not really surprising given that it is a US-based company and North American countries are quite developed. Unfortunately, this also means that the overall growth potential is quite limited. In fact, while acquisitions added $3.2 million to the region’s sales, organic revenue growth was only $18.3 million. When we factor in foreign currency fluctuations that negatively impacted sales by around $4.5 million, this brings us to an increase from $1.58 billion in 2022 to $1.60 billion last year. For those who follow the company closely, the small increase in sales during this period should not come as a big surprise. Even though the company benefited from price increases in the United States, it suffered from a decline in volumes. But that was entirely intentional, as management worked to unwind some unprofitable operations.

Other segments also saw growth. In Europe, for example, the company saw organic sales growth of $71.4 million. Acquisitions added another $107 million to the company’s revenue. And unlike any other region the company operates in, foreign currency fluctuations contributed $27 million. The real growth, however, came in Latin America. In 2022, The Brink’s Company generated $1.21 billion in sales in the region. That figure rose to $1.33 billion last year. The picture would have been even more impressive if foreign currency fluctuations hadn’t negatively impacted revenue by $162.8 million. And that’s thanks to a $282 million contribution from organic sales. Looking more closely at the data, management attributed the increase to inflation-related price increases, as well as growth in the company’s digital retail solutions and managed ATM services.

That’s not to say that everything went smoothly in 2023. Net income actually fell from $173.5 million to $87.7 million. Fortunately, all other profitability metrics were strong. Operating cash flow increased from $479.9 million to $702.4 million. When you factor in changes in working capital, that’s an increase from $492 million to $537.9 million. And finally, The Brink’s Company’s EBITDA increased from $788.3 million to $867.2 million.

As we approach fiscal 2024, we have seen further improvement from management. first quarter of the yearThe company’s revenue grew from $1.19 billion to $1.24 billion. All of the company’s major operating regions saw organic growth during the period. But the real organic expansion came, once again, from Latin America. Thanks once again to inflation-related price increases, as well as strong demand for its digital retail solutions and managed ATM services, The Brink’s Company saw organic revenue in the region increase by $117.1 million. Unfortunately, this was largely offset by foreign currency fluctuations of $97.9 million.

The company’s overall revenue growth led to a nice increase in profits. Net income more than tripled, from $15 million to $49.3 million. According to the data provided, this increase was due to multiple factors, including a decrease in cost of revenues from 77.6% to 75% of sales. This change alone added $32 million in pre-tax profits to the company’s bottom line. Net income wasn’t the only factor behind this increase. Cash flow from operations, for example, increased from -$45.1 million to +$63.9 million. When changes in working capital are factored in, the increase is from $112.6 million to $140.3 million. And finally, the company’s EBITDA increased from $190.5 million to $218.2 million.

Looking ahead to fiscal 2024 as a whole, management appears optimistic. to wait for Revenue is expected to be in the range of $5.075 billion to $5.225 billion. At the midpoint, that would be 5.6% higher than what the company generated last year. Earnings per share are expected to be in the range of $7.30 to $8.00. That’s on an adjusted basis. That would translate to adjusted net income of $346.5 million at the midpoint, which would be only slightly higher than the $345 million reported a year ago. Management also forecast EBITDA to be in the range of $935 million to $985 million. If we assume adjusted operating cash flow will grow at the same rate, using the midpoint in this case, we’d expect this year’s result to be around $595.5 million.

Based on these estimates and the historical results from the past year, I was able to create the chart above. You can see the current price of the stock. While the stock is not exactly the cheapest relative to earnings, it does look cheap relative to the other two profitability measures covered in the chart. When it comes to valuing the company relative to other companies, there aren’t many comparables to choose from. But the three companies that I think make the most sense are shown in the table below. On a price-to-earnings and a market value-to-EBITDA basis, The Brink’s Company came out as the cheapest of the bunch. And when it came to the price-to-operating cash flow approach, only one of the companies was cheaper than our candidate.

Click to enlarge

Take away

The Brink’s Company shareholders have had a very turbulent time over the past couple of years. This isn’t the kind of company you’d normally expect to see a lot of upside. But because of the low share price and continued growth from management, investors who bought the stock a few years ago have benefited handsomely. To be clear, I think the future upside will be more limited than it has been in the past. But because of the low share price and continued growth, I’d say it still deserves a Buy rating right now.