Sign up UNITED KINGDOM
Proactive Investors - Run By Investors For Investors

Serco shares drop on Citi downgrade

Citi is forecasting negative 1% and negative 5% organic growth for the current and subsequent years respectively
bin lorry
The services contractor's shares were down 4p or 3.9%

Serco Group Plc (LON:SRP) shares dropped more than 3.5% as analysts at Citigroup issued a downgrade, moving to ‘sell’ with a 87p price target which suggests some 11% downside the current price.

On Wednesday, Serco shares were down 4p or 3.9%, changing hands at 98.1p.

READ: Serco, Equiniti and Page Group downgraded by Credit Suisse amid Brexit uncertainty

Analyst Ed Steele said in a note that: “While cost cutting is helpful, meaningful positive organic sales growth seems unlikely before 2020 (or beyond).”

Steele is forecasting negative 1% and negative 5% organic growth for the current and subsequent years respectively, even as market consensus is “slightly positive” for the same periods.

“This, coupled with ongoing industry pricing pressures, suggests recovery towards management’s 5-6% EBITA margin target range may not be possible until 2022-2024,” Steele said.

READ: Serco expects 2017 profit at top end of guidance range as it signs deal with Carillion

“Consensus earnings per share (EPS) risk remains to the downside. Wall of rebids - sparse new contract wins has matured Serco’s contract base.

He added: “Our detailed analysis of 65 of Serco’s largest contracts (>75% group sales) reveals that its portfolio of c10 year average life contracts now carries only c3 years until expiry.

“Almost half of these (by value) are set for rebid during 2018 and 2019. For context, only 4 of our tracked 12 large rebids over the last 6 years saw retention.”

View full SRP profile View Profile

Serco Group Timeline

Related Articles

Laptop
June 06 2018
Financial services have been especially strong and driven by fears over cybersecurity ...
Intellectual property sign
April 11 2018
The AIM-listed intellectual property group’s investments were worth £8mln as at the end of December 2017, helped by the additions of The Vaccine Group and water pollution tester Molendotech
Talent meter
March 07 2018
Underlying profits are up 20% year-on-year and net fee income should be around 17% higher

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use