Brink's Says Cash Is Recession-Proof While Pot Offers New Growth

(Bloomberg) -- Brink’s Co. says cash isn’t dead and is actually a rather recession-proof business. Now it just has to convince investors.

The cash management and secure transportation company has boosted its margins and Ebitda since Chief Executive Officer Doug Pertz took the helm in mid-2016. His three-year strategic plan includes getting to about $620 million in adjusted Ebitda by 2019, a 68 percent increase from 2016 levels, through organic growth and acquisitions.

Investors responded to Pertz’s efforts at first, sending shares higher by 167 percent from the day he was appointed to the end of 2017. It was a welcome change from past leadership that left the company “one of the most overtly under-managed services companies in the Russell 2000 Index,” Buckingham Research Group analyst James Clement wrote in a note earlier this month. But the stock has languished this year, losing 15 percent through Wednesday, compared to a decline of 0.8 percent in the S&P 500 Index.

It has rebounded 7.6 percent in the past three sessions as executives embarked on a roadshow in New York.

To Pertz, Brink’s is just misunderstood. It has operations in 41 countries including the U.S., Canada, Mexico, Argentina and Brazil. Its customers include financial institutions, retailers, mints, jewelers and, most recently, the Canadian cannabis company Canopy Growth Corp. But some investors see it as a bet on cash when consumers in developed economies are increasingly turning to alternative payment methods, and also see it as an emerging-market play since only about a quarter of its operating profit comes from North America.

“We’re a lot less sensitive to downturns than others,” Pertz said in an interview Wednesday at Bloomberg’s New York offices. “Everybody needs to manage their cash, even in a downturn.”

Even in the U.S., where cash accounts for just 31 percent of consumer transactions, the amount of cash in circulation continues to grow faster than the economy, Pertz said. Growing privacy concerns and a recent Wall Street Journal report that Venmo has been struggling with payments fraud are illustrations of the benefits of cash, he added.

“Cash has a real place in society for the unbanked and under-banked and for smaller transactions,” he said.

Meanwhile, emerging markets have mostly been a strong point for Brink’s despite the impact of currency devaluation in Argentina. Cash use is much higher, at 90 percent in Mexico and 85 percent in Brazil, and Brink’s has been able to take advantage of consolidation in the market, including its $130 million acquisition of Brazil’s Rodoban, which received antitrust approval this week.

To Pertz, investors need to think of Brink’s as fitting into a peer group of industrial services and route-based companies like Cintas Corp., Rollins Inc. and Waste Management Inc., not just cash-management firms like Loomis AB and Prosegur Cash SA.

‘Perfect fit’

Brink’s has also been diversifying into other lines of business, including the burgeoning cannabis industry in Canada, which legalized recreational marijuana in October. The company said last month that it reached a multi-year agreement with Canopy to provide secure logistics and cash management services, including international shipments of weed to places like Germany.

The cannabis market could represent as much as $250 million in revenue and more than $50 million of Ebitda for Brink’s by 2022, according to Tobey Sommer, analyst at SunTrust Robinson Humphrey.

“I love the business, and what I think is so exciting about this is it’s a perfect fit for us, a perfect fit,” Pertz said, adding that he’s been talking to other Canadian cannabis companies and hopes Brink’s will become the go-to provider of cash management services for the industry.

Brink’s is also interested in the U.S. cannabis market but won’t touch it until federal regulations so as not to jeopardize the company’s relationships with the big U.S. banks, Pertz said.

“I’d love to see something happen in the U.S. to be able to duplicate what we’re doing in Canada,” he said.

--With assistance from Craig Giammona.

To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Will Daley

©2018 Bloomberg L.P.