Canada Connection: Garda World Security Corp.

Peter Morton | Sep 11, 2007 6:28am EDT | 1 Comment

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Canadian Security firm Garda World Security Corporation (TSE: GW.TO) has become the unsung darling of so-called “special situations” analysts who watch Canada’s small-cap companies. Investors, on the other hand, appear to be more cautious.

Founded by Montrealer Stephan Cretier in 1995, Garda – which means “police” in Gaelic – has grown from a tiny operation to a sprawling empire in North America, Europe, Mexico and the Middle East, including Iraq for the past four years during reconstruction security.

Garda handles airport security – it has contracts for all of Canada’s major airports – as well as cash logistics, meaning security trucks, in addition to security consulting and pre-employment screening. “Garda was really small a few years ago,” noted one industry analyst, who asked not to be identified and who follows Garda. “But they dominate the Canadian market and making inroads in the U.S.”

With headquarters in downtown Montreal, Garda has grown large through acquisitions of its competitors. There were 12 such deals in 2006 and two so far this year, including the California cash handling company ATI Systems International for US$400 million. That includes ATI’s fleet of 179 airplanes, which it will re-lease because of U.S. restrictions on foreign ownership of airlines.

“Globally, that places Garda as the fifth-largest security services company (in the world), by revenue, with leading market positions in each of its divisions,” says Sara O’Brien, an analyst with RBC, the securities division of the Royal Bank of Canada.

According to O’Brien, Garda’s recent growth spurt has made it the number two cash logistics company in North America. It shares a 58% market share in the United States with Brinks and Loomis and has 93% of the Canadian cash logistics market.

That may jump even higher after it signed in early August a C$5.2 million a year deal with three unnamed Canadian financial institutions in Toronto – Canada’s financial center – to handle their cash logistics.

"As a result of these new contracts, Garda becomes a leading provider in cash logistics services in Ontario and the Greater Toronto Area (GTA)," says Patrice Boily, Garda Senior Vice President of Operations and Reengineering.

Garda is also consolidating its Ontario operations by opening a new 52,000 square foot operational center in suburban Toronto near Toronto’s international airport that will house Garda's Ontario Cash Logistics operations as well as its physical security control center, consulting and investigations unit as well as its pre-employment screening.

The fact that Garda has virtually no competitors in Canada and is a major player in the United States is why analysts are bullish on the quiet company that is quickly becoming a major player in the US$113 billion a year securities industry.

“I believe Garda stock will reward investors over the next year for three reasons,” says O’Brien.

First, O’Brien said she expects 21% growth in earnings per share next year from an estimated C$0.70 this year, and a whopping 56% further growth in earnings per share in 2009.

In addition, she said she expects Garda will concentrate on high-margin security operations such as airports that will translate into greater revenues and profits.

“And while investors are still in the ‘show me’ mode with respect to Garda’s promised synergies in its U.S. cash handling business, I believe Garda will begin to deliver such operational savings in the second half of this year and investor confidence at that time will translate into stock gains,” O’Brien said.

Hugues Bourgeois, an analyst at Montreal’s National Bank, also ranks Garda as an “outperform.” Bourgeois pegs 2008 revenues at over C$1.2 billion, compared with an estimated C$676.1 million this year and C$259 million in 2006. Earnings in 2008, according to Bourgeois, will jump to C$113.9 million or C$1.04 a share, from an estimated C$60.1 million, or C$0.75 a share this year. His estimates for 2009 are revenues of C$1.45 billion and earnings of C$170.3 million, or C$1.43 per share.

Investors, for their part, have been slow to warm to Garda. Its 52-week range is C$16.08 to C$25.00. It currently is trading at about C$17.36.

“We’re still bullish (on Garda) but there are some short-term risks,” says Bourgeois. “Current valuation is attractive but given the size of its latest acquisition (ATI) and despite GW’s track record, the integration presents some risks.”

That is a view shared by O’Brien who says she “believes investors are worried that Garda’s rapid acquisition may be too much to digest.”

So they are waiting before putting their confidence and their money back into the stock, she says.

For the latest news and stock price information on Garda, please click GW.TO.

About the Author
Contributing author Peter Morton is Washington Bureau Chief for The Financial Post, Canada's leading business and financial newspaper, a unit of The National Post. Read More