You could argue that Serco (SRP) is at an inflexion point. Following an arduous few years spent rooting out savings and rehabilitating its image, the group's fortunes – at least in terms of the top line – have seen something of a turnaround, with a 5.6 per cent constant currency drop in the first half giving way to a 2.5 per cent increase in sales over the remainder of 2018.
The second-half recovery prompted management to raise guidance, with 2019 revenues now expected at £2.9bn-£3bn, against £2.8bn-£2.9bn previously. Underlying trading profit is now expected to be £5m in advance of the upper end of previous guidance, albeit as a result of changes to lease accounting rules. Related margins were on the rise and free cash flow (FCF) turned positive. But perspective is critical; the reported operating margin remains painfully thin at 2.8 per cent, while £25m in FCF, though welcome, looks insipid given the scale of Serco's operations. Nevertheless, broker Peel Hunt felt able to increase forecasts for adjusted 2019 EPS to 5.6p (from 5.4p) against 5.21p in 2018.
| SERCO (SRP) | ||||
| ORD PRICE: | 121p | MARKET VALUE: | £ 1.33bn | |
| TOUCH: | 121-121.1p | 12-MONTH HIGH: | 122p | LOW: 84p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 20 | |
| NET ASSET VALUE: | 35p* | NET DEBT: | 49% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 3.60 | -991 | -151 | 3.10 |
| 2015 | 3.18 | -69.0 | -8.8 | nil |
| 2016 | 3.01 | 30.0 | 1.6 | nil |
| 2017 (restated) | 2.95 | 10.6 | -0.8 | nil |
| 2018 | 2.84 | 74.1 | 6.2 | nil |
| % change | -4 | +599 | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £647m, or 59p a share | ||||
