Brink's in Strong Position

Recently, Brink's Home Security Holdings, Inc. (CFL) reported results for the fourth quarter and full year 2009, which ended on 31 Dec, 2009.
 
Earnings
 
During the quarter, the company reported a net income of $21.7 million, up from $16.3 million in the year-ago quarter. EPS was 47 cents, up from 36 cents in the fourth quarter of 2008. Reported EPS surpassed the Zacks Consensus Estimate of 28 cents.
 
During 2009, reported net income was $75.5 million, slightly up from $72.4 million in the previous year and EPS was $1.64, up from $1.58 in 2008. Again, the reported EPS was well above the Zacks Consensus Estimate of $1.32.
 
Increase in net income was the result of an increase in revenue and operating income.
 
Revenue
 
During the quarter, the company reported revenue of $145.4 million, up 7.5% from $135.2 million in the fourth quarter of 2008. The increase was attributable to a 4.4% increase in the subscriber base, and a 4.5% increase in average monthly recurring revenue per subscriber.
 
Revenue for 2009 stood at $565.1 million, a 6.2% increase from $532.3 million in 2008. The increase was due to a 5.3% growth in the subscriber base and higher average monitoring rates.
 
Operating Profit
 
The company reported an operating profit of $27.5 million in the quarter, up from $24.7 million in the fourth quarter of 2008. Operating margin was 18.9%, marginally up from 18.3% in the last year’s quarter.
 
Full year operating profit was $101.4 million, up from $94 million in the previous year, representing an increase of 7.9% year over year. Operating margin went up by 20 basis points to 17.9%.
 
The increase was due to the reduction in the royalty rate charged and higher profits from recurring services on the larger subscriber base.
 
Based on the difficult economic position as well as a weak housing market, Brink's Home added approximately 10,900 net subscribers during the fourth quarter, down from 16,300 additions during the same quarter of last year. Only 39,000 new customer systems were installed during the quarter compared to 41,600 installations in the fourth quarter of 2008.
 
Liquidity
 
At the end of fourth quarter of 2009, cash and investments were $118.2 million, up from $108.5 million in the previous quarter and $63.6 million at the end of the same quarter of 2008. During the quarter, capital expenditures were $45.9 million, almost flat, compared to $42.5 million in the comparable quarter of 2008.
 
We are affirming our Neutral recommendation on Brink’s Home Security Holdings, Inc. with a target price of $42.50. The voting on its proposed merger with Tyco International by the company’s shareowners is due on May 12, 2010 with the tentative date of closure being May 29, 2010 or earlier if all the required approvals are in order.

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