Serco (SRP) is a defensive favourite in many portfolios, so a solid set of full-year results was welcome. But it was the new dividend policy that set investors' pulses racing and sent shares over 8 per cent higher. "Confidence in our business prospects underpins our commitment to a higher payout ratio over the coming years," said chief executive Christopher Hyman. That means bringing down the current four times dividend cover to between 2.5 and three times over the next three years.
Serco won a record £5.8bn contracts during the year and the order book increased by £1.2bn to £19.1bn, providing visibility over 92 per cent of revenue in the coming year and 79 per cent in 2014. Revenue growth was boosted by acquisitions in business process outsourcing (BPO), but even stripping these out organic growth was 3.3 per cent.
The strongest growth came from Australasia, Middle East, Asia and Africa where revenue increased almost a third to £883m, and now accounts for 18 per cent of the group total. The US operations are still struggling from cuts to the military budget, so both revenue and profits fell by double digits. The UK was more resilient and a return to organic growth buoyed operating profits up 5 per cent to £173m.
Broker Panmure Gordon upgraded its target price to 700p and expects EPS of 43.5p (from 42.9p in 2012).
SERCO GROUP (SRP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 620p | MARKET VALUE: | £3.10bn | |
| TOUCH: | 620-621p | 12-MONTH HIGH: | 650p | LOW: 508p |
| DIVIDEND YIELD: | 1.6% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 226p* | NET DEBT: | 51% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 3.12 | 136 | 20.5 | 5.00 |
| 2009 | 3.97 | 177 | 26.8 | 6.25 |
| 2010 | 4.33 | 214 | 31.9 | 7.35 |
| 2011 | 4.65 | 238 | 35.7 | 8.40 |
| 2012 | 4.91 | 302 | 49.9 | 10.1 |
| % change | +6 | +27 | +40 | +20 |
Ex-div: 13 Mar Payment: 22 May *Includes intangible assets of £1.54bn, or 309p a share | ||||
