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