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Introduction

The Brink’s Company (BCO) is a $3.40 billion company in the security systems & services industry. Market capitalization competitors in this industry include Checkpoint Systems, Tyco, and China Security & Surveillance. The security industry down 18.28% over the past year compared to the S&P 500 which is down 7.34% during the same period. Over the past month, the industry has been down 2.50%, while the S&P 500 has been up 2.29%. Strong technical trends may be indicative of a continued expansion in this industry. Evidence comes from a potential turnaround in general equities. Moreover, as there seems to be evidence of confidence in equities, hard-hit companies like Brink’s will see future benefits. Also Brink’s growth and valuation illustrate the potential for a strong earnings report next quarter.

Business

This section describes what Brink’s produces. According to Reuters, Brink’s, though its two subsidies, “provides secure transportation, cash logistics and other security-related services” and “provides security alarm monitoring services for residential and commercial properties.” Beginning with Brink’s first subsidy, Brink’s Incorporated, this segment focuses on transportation and cash logistic services. The business is found internationally, which is great news, because of the dollars strong plunge against other currencies. In fact, nearly 67% of all of Brink’s services were held outside the United States. Some of the specific products that Brink’s offer includes CIT armored transportation, ATM loss replenishment, and supply chain management of cash. These products are usually found in retail and consumer locations such as restaurants, grocery stores, and movie theaters.

However, Brink’s has another subsidy, Brink’s Home Security, as well. This business segment focuses on security alarm systems for North American individuals. Most customers include residential individuals, but some systems are placed for commercial use as well. A typical package includes fire, theft, and medical alarms. Once an alarm is triggered, help from the appropriate service is notified. Through kaizen process, Brink’s has made a very productive and useful system for users to enjoy.

Growth

Brink’s has illustrated solid growth prospects over the past year. According to Reuters, Brink’s reported a $3.22 billion revenue product last year. This number is up over 18.43% than it was the previous year. Compared to the industry’s average of 8.30%, investors see the relative growth compared to other competitors. This number is also higher than the company’s five year average of (2.92)% and competitor annual averages of 14.01 % ( Tyco). Brink’s grew at an astonishing 94.05% last year—a number much higher than the industry 19.39% average. Competitors such as Checkpoint’s only saw a 43.07% improvement and China Security saw a disappointing decrease in earnings of -15.44%. Therefore, there are many positive attributes associated with Brink’s growth history.

In addition, Brink’s has kept its costs under control. According to Reuters, Brink’s has reported gross, operating, and net profit margins of 100.0%, 9.03%, and 4.87% respectively over the past year. Moreover, these numbers are above the industry averages of 47.42%, 5.05%, and 2.97%, respectively. The numbers are also above the company’s five year average respective numbers of 100%, 6.57%, and 3.73%. This comparison illustrates a history of strong cost controls and positively-related consistency. The current averages are also better (business model respected) than competitor Tyco’s respective operating and net income averages of (6.31)%, and (11.25)%. Therefore, Brink’s has proved to be a solid company in this industry. Its services are well-controlled cost wise, especially to direct market-cap competitors.

Compiling all this information together and investors comes across ROE. Over the past year, Brink’s reported an ROE of 17.49%. Therefore, out of all shareholder equity, more than 17% (above five year average) come from earnings instead of debt or stock. This number is much stronger compared to the industry average of 15.46%, and the number is better than some competitor averages (8.38)% (Tyco) and 8.09% (Checkpoint). Therefore, Brink’s has a history of strong earnings per its equity share—which reflects the strong capital gain movement over the past year. And if history is any indication, there should be no reason why Brink’s cannot continue its success. The same logic applies to Brink’s 7.02% ROA (above industry average) and 9.73% ROI (above industry average).

Valuation

With fairly high growth estimates and historical data, there should be evidence of an overvalued company. However, this is not strictly the case. Brink’s has a forward P/E ratio of 19.69 and a price to sales ratio of 0.93 compared to the industry’s respective 23.25 and 1.30, which shows a relatively undervalued status. In comparison, the rest of the market cap competitors have ratios that higher than Brink’s. China Security has a forward price to sales ratio of 2.22, and Tyco does not even have positive earnings to have a P/E or price to sales ratio. What makes Brink’s figures are more enticing is these competing firms aren’t growing so greatly as strongly as Brink’s. Brink’s can now be seen as both a growing and valued company. Moreover, Brink’s has a relatively low PEG (1.32) ratio compared to other competitors’ numbers as well.

Efficiency

Brink’s is efficient. Inventory turnover at 6.87 is strong compared to other industry market-cap rivals (Tyco: 6.54). Moreover, asset turnover is also strong at 1.44 compared to competitor figures. Receivables turnover also illustrates a number of 6.90 illustrating cash received every 52 days. In terms of liquidation, Brink’s current ratio is 1.39. This number is a bit risky, but the company’s capital expenditures have increased (10.57%) which means further increases in capacity and economies of scale may be present in the future, because of this financing. Moreover, institutions own 93.13% of all Brink’s shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability.

Technical Analysis

Brink’s performed flat in the past year. The company’s share price has increased 5.52% year-to-year. This type of growth is solid for a recessionary-type economy, especially considering the fact that the housing market and construction is doing so poorly. There seems to be some support at the 65 dollar share price range dating back to earlier April 2008. The last time Brink’s reached this amount the company rebounded and appreciated 7%. There is a possibility a similar or better situation could occur in the future.

More specific to the current month, Brink’s illustrates strong technical signals. Parabolic SAR is below and upward trending the current share price. This event usually signals an upturn in share price. The company is a little undervalued compared to the RSI index at 53.12, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of Brink’s according to technical analysis, purchasing shares will still produce strong long terms gains.

Conclusion

Brink is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise.

-Dennis Biray
May 9th, 2008