Serco shares leap as it reinstates full year guidance
Serco shares shot up this morning as it announced it would reinstate guidance for the year following strong performance in the first half of the year.
Shares in the public services provider jumped 17.89 per cent this morning after it reported a 23 per cent increase in revenue.
Underlying trading profit was around 50 per cent higher than in 2019, between £75m and £80m. Serco said the growth had been driven primarily by its overseas businesses, including the impact of its acquisition of the naval systems business unit of Alion in North America last year.
Although the firm said it had experienced “significant operational challenges” as a result of the pandemic, there had been “limited financial impact in the first half”. Losses in some of its units were offset by additional work elsewhere, reporting a strong order intake of around £1.8bn.
The firm has therefore reinstated guidance for the year after originally withdrawing it in early April, at the peak of the coronavirus crisis in the UK.
“It is a sign of confidence in Serco’s capabilities post the restructure and focus of the past several years that the group can now reinstate forecast guidance – albeit with a degree of risk in the continuing Covid environment,” said Robin Speakman, equity research analyst at Shore Capital.
The new guidance predicts an underlying trading profit for the year of around £145m, compared to previous expectations of between £135m and £150m. Serco also anticipates revenues to be around £3.7bn, compared to the £3.5bn previously forecast.
Chief executive Rupert Soames said: “Being able to reinstate guidance for the full year reflects the resilience of our business, which depends for its revenues on governments rather than businesses or consumers”.
“This update also points to the success of the Group’s restructure of recent years and is a strong indication, in our view, of the overall health of the business now,” Speakman added.
Soames said: “Clearly, there is a more than normal degree of risk in our guidance, but we feel it better that we give some indication rather than none.”