Serco shares rise on "reassuringly dull" first half

BRITAIN-CHINA-TRANSPORT-TRADE-DIPLOMACY
Chief executive Rupert Soames said order intake was strong. (Source: Getty)

Outsourcer Serco's shares were on the rise this morning as the FTSE 250-listed company held its nerve on full-year predictions.

The figures

Underlying trading profit fell 30 per cent to £35.3m in the six months to the end of June, from £50.6m during the same period last year.

Revenues edged down 0.5 per cent to £1.51bn, from £1.52bn the year before, although they beat expectations of £1.48bn.

Meanwhile, order intake increased to £2.4bn from £900m the year before, including the company's largest ever contract, a £1.5bn deal to operate Grafton prison in Australia. That pushed its order intake over the past 12 months to £4bn, the largest since 2012.

Underlying earnings per share hit 1.55p, while net debt rose to £148.9m, from £99.7m the year before.

Shares rose 3.5 per cent to 116.6p in early trading.

Read more: TfL signs £79m deal with Serco to upgrade London's Boris bikes

Why it's interesting "reassuringly dull"

For a company whose investors have become used to dramas (cf. 2013's criminal tagging scandal; February's share price crash), these results were "reassuringly dull", said analysts at Liberum.

The company had expected a comparative slide in profits in the first half thanks to an unusually strong first half in 2016. Crucially, results were in line with expectations, while small details - the fact its book-to-bill ratio was over 100 per cent for the first time in five years; that giant Grafton prison contract - provided encouragement for shareholders.

And while political uncertainty may have a modest effect on the company, with the potential to increase labour costs, Serco pointed out it is well-placed to take advantage of the outcome of the EU referendum.

"The repatriation of swathes of regulatory functions may lead to important opportunities," it said.

"Many of our largest customers - most notably the Ministry of Defence, the Ministry of Justice and the Home Office - still have pressing needs to reduce costs and increase efficiency."

Read more: Accountancy watchdog launches probe into Deloitte over Serco audit

What Serco said

Rupert Soames, the company's chief executive, said:

Notwithstanding the well-flagged decline in profits compared with the first half of 2016, trading in the first half of 2017 keeps us on track to achieve our expectations for the full year, and represents an improvement in underlying trading profit on the second half of 2016.

The most striking element is the order intake, which for two successive periods has been very strong, totalling some £4bn in the last 12 months, and we have succeeded in maintaining the pipeline at broadly similar levels despite strong order conversion. However, as we said in June, we remain sensibly cautious in the light of the political environment in several of our markets becoming markedly more unpredictable.

Read more: Here's why Serco shares have tanked despite meeting forecasts

Related articles