As part of a sector intent on rehabilitating its image in the eyes of investors and taxpayers, Serco (SRP) has been also making significant efforts to expand internationally, an indication, perhaps, that the public/private outsourcing model in the UK is a busted flush. Indeed, four-fifths of the group’s £1.6bn order intake in the first half was generated outside the UK/Europe. Given that the UK alone accounted for two-fifths of reported revenues, it suggests a profound change is under way.
As the group spreads its wings, it is also looking to improve efficiencies. Cost savings contributed to a 20 per cent constant currency increase in trading profits. Even as profits improve, however, cash remains a problem. Management is predicting a cash outflow for the year and analyst Peel Hunt does not forecast a positive free cash flow yield until 2020, though it upped 2018 pre-tax profit and EPS forecasts to £66.5m and 3.84p, respectively (from £57.7m and 3.2p in 2017).
Beyond improving cash returns – no mean feat in itself – management is attempting to reargue the case for public sector outsourcing in the wake of Carillion’s collapse. On this, chief executive Rupert Soames summarises the challenges ahead in characteristic style: “Our strategy is to weather as safely as we can the current storm…dipping our net in the water if we see opportunity, so we will be well positioned when we reach calmer waters”.
| SERCO (SRP) | ||||
| ORD PRICE: | 102p | MARKET VALUE: | £1.12bn | |
| TOUCH: | 102.3-102.6p | 12-MONTH HIGH: | 121p | LOW: 82p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 33 | |
| NET ASSET VALUE: | 25p* | NET DEBT: | 79% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 1.51 | 13.0 | -1.77 | nil |
| 2018 | 1.37 | 25.6 | 1.32 | nil |
| % change | -9 | +97 | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £631m, or 57p a share | ||||
