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Peel Hunt upgrades Serco to ‘add’ on the back of “attractive” naval engineering acquisition

The broker said the £173mln acquisition of the Naval Systems Business Unit of defence group Alion, announced last month, would be a “very good fit” for Serco’s existing business

Navy ship
Serco said previously that the purchase would make it a top tier supplier to the US Navy

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.

READ: Serco launches £130mln cash call to fund acquisition of US naval engineering business

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.

Quick facts: Serco Group

Price: 156 GBX

LSE:SRP
Market: LSE
Market Cap: £1.91 billion
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