Serco Group PLC (LSE:SRP) surged over 6% to over 267p for the first time in over a decade, after the government outsourcer reported strong trading into its year-end and upped its profit guidance for this past year and 2026.
Full-year underlying profits (EBITA) are now expected to come in at around £270 million, which is 3% ahead of the consensus forecast across City analysts.
Free cash flow guidance was also increased 30% to £270 million.
New 2026 guidance included 3% organic growth, ahead of consensus, with £300 million of EBITA, which is around 5% ahead of the average analyst estimate.
"Overall momentum across the business remains strong, supported by defence and good progress on planned productivity improvements," said Jefferies analyst Allen Wells, who noted that CFO succession plans were also confirmed today, with Mark Reid joining from Belgian telco Proximus.
"No new buyback reload has been announced today, but we think this may be revisited again in the coming months," Wells added.
Christopher Bamberry at Peel Hunt said the 2026 initial outlook reflects a full 12-month contribution from US military training business MT&S, the benefit from the ramp-up and reduced costs on newly mobilised contracts, as well as continued productivity improvements, offset partially by an anticipated reduction in UK immigration volumes and the impact from the annualisation of the AsPac immigration contract loss and higher UK NI costs.
"We expect to flow this better than expected performance and guidance into estimates," Bamberry said, noting that the shares trade at 14.9 times 2026 expected earnings, underpinned by a 7.1% equity FCF yield.
"We believe Serco is well positioned, with rising defence budgets, attractive fundamentals, and strong balance sheet optionality."