Starboard Value is active at Brink’s Co. with an 8.2% stake. Not a huge position for Starboard, making up just 2.75% of its pro forma portfolio. A decent size wager. Getting the company sold is the likely path to success for SV, although it’s already up 20% on its stake. As mentioned afore, it’s SV’s 9th largest holding on a pro forma basis.
International operations still account for three-quarters of its revenues. Making the real growth story emerging markets. The focus being Latin America - its largest market. North America still needs a turnaround.
However, Latin America hasn’t built out the necessary infrastructure for a strong money movement business. When that comes, there is growth opportunities. In the meantime, it has a payment services business, for things such as prepaid payroll cards and online card processing.
It's highly exposed to the emerging markets, but this has yet to translate into the big growth. One option is to re-enter the home security market, where its non-compete with its home security business has expired. Re-entry into the home security business would give it a jolt in revenue growth.
There’s also a big opportunity to cut costs and get margins back in line with peers in the meantime. Brink’s EBITDA margin is running about half of its major peers. The company has a cost savings plan in place, but it’s just not enough.
Gamco Investors went active in February of last year and less than six months ago was pushing to get a dissident director on the board. Gamco thinks that Brink’s is trading of at a discount to its private market value.
Recall that Shamrock Holdings sent a letter to Brink’s in 2012 trying to get the company to sell itself, citing underperformance. It’s continued to underperform, up just 9% since the start of 2013, while the S&P 500 is up 45%. The valuation is still relatively cheap, trading at just over 6x forward EV/EBITDA - compared to the market, but not historically. And private equity interest? Cash flow generation has been on the decline, so that’ll be tough. In the end, Starboard Value didn’t lay out any plans, other than to say it may engage with management. A further breakup doesn’t seem likely, with the big thesis likely being a push to get the company sold to a security business that’s looking for Latin American and emerging market exposure.