Will Serco Group's Results Lift It Off Its 2-Year Lows?
Spreadex | Feb 15, 2018 10:43
The government services firm has a truly painful 2017. An awful set of full year figures last February – with the lowlight being the fact Serco swung from a £29.6 million pre-tax profit to a £69.4 million loss – sparked a near 18% single session drop, a decline the company came nowhere near reclaiming.
The stock then spent most of the year trading between £1.10 and £1.20, only for the news that it was pulling out of the running for a number of Middle East rail contracts worth £2.5 billion in November to send it another leg lower. This left the company trading at perilously near 91p, a price it was rescued from by December’s pre-close update.
With order intake for the year at £3 billion, allowing a book-to-bill ratio over 100% for the first time since 2012, Serco stated that its 2017 underlying trading profit is expected to be ‘around the top end’ of its £65 million to £70 million previous guidance. That figure is forecast to rise to £80 million for its fiscal 2018, followed by ‘further good growth’ in 2019. Net debt is also set to be at the lower end of estimates.
It did warn, however, that revenue is expected to come in under £3 billion, missing expectations, and that ‘the pipeline of new bid opportunities will be ‘noticeably lower’ by the time the firm reports its annual results. Still, the update helped somewhat reassure investors, taking the stock back to 99p by the year’s end – admittedly a 31% slide year-on-year, but (slightly) better than it could have been.
Sadly for Serco, 2018 has only brought more misery, thanks to the sector-wide shock of Carillion’s (LON:CLLN) collapse and Capita’s (LON:CPI) latest profit warning dragging the stock to a 2 year nadir by the start of February. The company has managed to just about lift off of those lows, with the Valentine’s Day reveal that it had pushed the price of the healthcare contracts it was buying from Carillion down from £47.7 million to £29.7 million taking Serco to a current trading price of 86.9p.
In terms of next Thursday’s annual figures, the reaction will likely be dictated by how closely the underlying trading profit and net debt numbers adhere to the previously stated guidance, as well as the size of the drop in earnings per share.
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Serco Group (LON:SRP) has a consensus rating of ‘Hold’ alongside an average target price of £1.20.
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