Serco Group PLC (LSE:SRP) shares rose 7% on Tuesday, placing the public sector outsourcing group among the top gainers on the FTSE 250, after the company reported better-than-expected half-year results and announced a fresh £50 million share buyback.
The results showed underlying earnings (adjusted EBIT) at £146 million for the first six months to June, ahead of market guidance.
Revenues met previous expectations at £2.42 billion, while adjusted earnings per share rose 12% to 8.6p. Cash conversion remained robust at 84%, and net debt stood at 1.3 times EBITDA.
Despite higher UK operating costs and the end of its Australia immigration contract, Serco maintained its full-year guidance, with revenue expected to grow 1% organically to £4.9 billion and EBIT forecast at £260 million.
The interim dividend was raised by 8% to 1.45p.
Shore Capital notes that Serco’s order book increased 9% to £14.5 billion in the period, with major contract wins for UK Ministry of Defence recruitment and Royal Navy marine services.
While defence markets underpin the group’s long-term outlook, ShoreCap cautions that pressure on wider public sector budgets could impact other areas.
The broker maintains a 'hold' rating, citing strong fundamentals but awaiting further evidence of organic growth beyond defence.
Panmure Liberum was more bullish with a 220p price target and 'buy' recommendation, while Peel Hunt thinks they are worth 211p.
The stock rose 15.4p to 224.9p.