Serco's (SRP) third profit warning in six months and the prospect of a rights issue to shore up the balance sheet sent the embattled outsourcer's shares tumbling as much as 23 per cent. In a brief statement, Serco said that trading so far this year had been more challenging than expected and that the group needed to "reassess the level of risk" in the assumptions underpinning its forecasts.
Serco said this could lead to a "material" downward revision to expectations and that it was consulting with shareholders on a possible share placing to strengthen the balance sheet. A further announcement will be made later this week. Also later this week, Rupert Soames, formerly of Aggreko, will join as the group's new chief executive.
Broker Peel Hunt says that a material downgrade could imply a 20 per cent cut to current earnings expectations. The broker says that the combination of lower earnings and possibly weaker working capital could see the group's net debt to ebitda ratio climb to around three times. Peel Hunt says that assuming a target net debt to ebitda ratio of 1.5 times, Serco may need to raise around £350m. Investec, meanwhile, says the capital raise could be even larger at over £500m.
