Buoyed by acquisitions, Serco's first-half performance appeared reasonable enough - revenues, profit and dividends all moved in the right direction. But the outsourcer has suffered a sharp reversal in the US, with revenues there down 16 per cent in the period while profit is a fifth lower. Such headwinds mean we're retiring our long-standing buy tip.
Strip-out acquisitions and group underlying organic revenue fell 2 per cent year-on-year. While, adjust for a £31m one-off disposal gain, as well as £15.7m in reorganisation costs in Europe, and pre-tax profits actually fell 17 per cent to £102.1m. Free cash inflow also slipped - from £51.8m last year to just £0.9m. Serco's hopes are pinned on £4.2bn of contract wins, which grew the order book by £1.5bn to £19.4bn. Moreover, the group operating margin remained stable at 6 per cent. But management has warned that, in the US, the federal outsourcing market is tough - with conditions there set to remain challenging. Although, chief executive Christopher Hyman anticipates a strong second half, driven by recent contract wins.
Broker Panmure Gordon expects adjusted full-year pre-tax profit of £273.7m, giving EPS of 40.6p 2011: £262.2m/39.3p).
SERCO (SRP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 568p | MARKET VALUE: | £2.83bn | |
| TOUCH: | 567-569p | 12-MONTH HIGH: | 606p | LOW: 455p |
| DIVIDEND YIELD: | 1.5% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 206p* | NET DEBT: | 62% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 2.25 | 112 | 16.7 | 2.50 |
| 2012 | 2.34 | 121 | 19.9 | 2.65 |
| % change | +4 | +8 | +19 | +6 |
Ex-div: 5 Sep Payment: 19 Oct *Includes intangible assets of £1.4bn, or 285p per share | ||||
