G4S Olympic blunder hits £5.2bn M&G Global Basics fund

16 July 2012 | By Gary Jackson

Shares in G4S – a key holding of M&G fund manager Graham French - have tumbled after the security company said it expects to make a loss on its £284m Olympic contract.

G4S’ share price has fallen by 8.86 per cent at 1309 BST on Monday. This follows the company’s confirmation on July 13, that it will be unable to supply the required number of security contractors to cover the Games, leading speculation that chief executive Nick Buckles will come under pressure to depart.

The stock is a top 10 holding of French’s £5.2bn M&G Global Basics fund, where it made up 4.7 per cent of the portfolio as of May 31. M&G confirms that French still holds the stock but added the manager was unavailable to comment.

French also owns the company in his £1bn M&G Managed Growth fund, which had a 2 per cent allocation to the stock as of June 30.

A number of brokers, including UBS and Jefferies, downgraded G4S after the company warned about its Olympics loss.

A statement by G4S says: “We have recently encountered significant difficulties in processing applicants in sufficient numbers through the necessary training, vetting and accreditation procedures. As a result, we will be unable to deliver all of the necessary workforce numbers.”

The shortfall means that the Government will draft in 3,500 members of the armed forces to provide security for the event, which gets underway on July 27. G4S says it will cover the cost of the increased military deployment, adding that it is incurring “other significant costs” as it works towards meeting the contract.

“Whilst it is not possible to gauge the precise financial impact, it is estimated that the company will incur a loss on the contract in the range of £35m [to] £50m, all of which will fall in the current financial year,” the statement says.

The M&G Global Basics fund has a big IFA following and is currently top quartile in the Investment Management Association global sector over three years. The fund has returned 42.8 per cent over the past three years, compared to a sector average of 33.4 per cent.

The M&G Managed Growth fund is second quartile in the IMA flexible investment sector in the last three years having returned returned 5.9 per cent compared to the sector average of 1.5 per cent.

 

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