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Serco made solid progress in the first half, winning £2bn of contracts and taking the order book to a record £14.6bn. Moreover, a further £600m looks to be in the bag after it gained preferred bidder status on several contracts, including £400m for the Dubai Metro project.
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Its customers must be happy too, because its success at rebidding for existing work exceeded 90 per cent. But the good news doesn't stop there. Serco has already secured 99 per cent of planned revenue for this year, 84 per cent for 2008 and 73 per cent for 2009, giving it an enviable rate of earnings visibility.
Much of its success comes from a growing trend for government departments to outsource essential services. Indeed, its civil government sector, which includes offender management and immigration control, grew turnover by 8.2 per cent to £496m. More good news came from its US operation, where a contract with the US postal service was renewed and increased in size to cover a 10-year period - that's worth $260m (£129m). Yet margins haven't been sacrificed, rising in the period from from 3.6 per cent to 3.9 per cent (at the pre-tax level).
Investec Securities has increased its full-year EPS estimate from 19.6p to 20.38p (17.1p: 2006).
| SERCO (SRP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 410p | MARKET VALUE: | £ 1,984m | |
| TOUCH: | 409-410p | 12-MONTH HIGH: | 514p | LOW: 343p |
| DIVIDEND YIELD: | 0.9% | PE RATIO: | 23 | |
| NET ASSET VALUE: | 921* | NET DEBT: | 49% | |
| Half-year to 30 Jun | Turnover (£bn) | Pretax profit (£m) | Earnings per share (p) | Net div per share (p) |
|---|---|---|---|---|
| 2006 | 1.24 | 44.8 | 6.69 | 1.05 |
| 2007 | 1.35 | 52.0 | 7.71 | 1.23 |
| % change | +9 | +16 | +15 | +17 |
Ex-div:05 Sep Payment:17 Oct *Includes intangible assets of £666m or 138p a share |
||||
Certainly, a forward PE of 20 isn't especially cheap. But Serco is confident of double-digit growth in 2007, which leaves that rating looking more than deserved. Longer-term good value.
Last IC view: Fairly priced, 447p, 9 March 2007
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-IC-1.6.1b-prod - 17/12/2008 12:46:12 - jonathan.furseftb
