Peel Hunt has upgraded Serco Group PLC (LON:SRP) to ‘add’ from ‘hold’ and upped its target price to 146p from 129p on the back of a “strategically attractive” acquisition of a US naval engineering business announced last month.
In a note, the broker said the £173mln acquisition of the Naval Systems Business Unit (NBSU) of defence technology group Alion would be a “very good fit” for Serco’s existing business and a significant step-up in its engineering capacity.
The acquisition would also make Serco a top tier supplier to the US Navy, which Peel Hunt said was one of the most attractive segments of the company’s portfolio as it combined long-term sustainable growth a balanced risk-reward profile.
“The acquisition is a further step in the evolution to Serco becoming a normal company in growth mode”, the broker said.
Serco unveiled its acquisition of NBSU last month, raising around £140mln in a discounted share placing to help fund the purchase.
The acquisition is expected to complete in the second half of 2019, with the business forecast to contribute around US$370mln in revenues in its first year of ownership.
In lunchtime trading on Wednesday, Serco shares were up 0.3% at 133.9p.