Following a tough year for security solutions group G4S, Investec has raised its rating for the stock from 'hold' to 'buy', saying that the company is well-placed to recover in 2013.

"G4S has faced a series of setbacks in the UK, with the mishandled Olympics contract followed by a failure to secure recent high-profile prisons and police opportunities," noted analyst Gideon Adler.

"However, we believe concerns over exclusion from government outsourcing are overdone, and that the group is poised to benefit from a greater flow of programmes into 2013."

Adler said that the company has an "evolving growth platform" with the emerging markets now accounting for one third of group revenues. Meanwhile, the company is seeing an improving mix effect on revenues and margin from its developing markets business.

"After a year of subdued activity in M&A, management has outlined its intent to consolidate further in 2013, with acquisitions set to support organic growth. Margins should start to recover supported by cost savings, and as cash contracts begin to normalise."

The broker raised its target price for the shares from 280p to 330p, saying that even though the stock has rebounded so far in 2013, it still "screens cheaply on a growth-to-value metric".

"Though the valuation discount has started to unwind, we believe there is more to come in 2013," Adler concluded.

Shares were up 0.25% at 284.5p, having now gained 11% over the year to date.

BC

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