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Serco sinks amid uncertain outlook despite profit surge in first half

The company said uncertainty in its business is “likely to persist well into 2021” as the fallout from the pandemic continued

Serco Group - Serco sinks amid uncertain outlook despite profit surge in first half

Serco Group PLC (LON:SRP) shares were lower on Thursday as the firm offered an uncertain outlook for the coming year despite a strong performance for its first half.

In an outlook statement accompanying its results for the six months ended June 30, the security and outsourcing firm said they expected the uncertainty in its business is “likely to persist well into 2021” as the fallout from the pandemic continued.

READ: Serco a ‘unique asset’ exposed to international government contracts, says Berenberg

“We are already seeing in Australia and in North America that these secondary upsurges are hard to contain and can have a disruptive impact on workplaces, which in turn can affect both our revenue and profit”, Serco said, adding that government contracts won to support their coronavirus response efforts had “offset the significant negative impact of the pandemic” on other parts of the business but were “unlikely to continue much into 2021”.

“The variable nature of this work introduces a greater degree of near-term risk in our planning”, the firm said.

The somewhat bleak short-term outlook accompanied a strong set of figures for the first half, with Serco reporting an underlying trading profit of £77.6mln, up 53% year-on-year, while revenues climbed 24% to £1.82bn.

Serco also reported that its order book had increased to £14.5bn in the six months from £14.1bn at the end of 2019, while the value of its pipeline of new bid opportunities had reduced to £4.1bn from £4.9bn as a result of recent contract wins.

Chief executive Rupert Soames also reiterated the company’s guidance for 2020 of £3.7bn in revenues and an underlying trading profit of between £135-£150mln, originally issue on June 17.

“Nothing in recent weeks has changed our view, although, as set out in our Outlook section, [coronavirus] has introduced a greater degree of risk around our guidance than would normally be the case", Soames said.

In a note, analysts at Liberum retained their ‘buy’ rating and 180p price target on the firm, saying the interim results were “in line with expectations”, although they cut their earnings per share guidance for 2021 by 7% to reflect the macro uncertainty, adding that “much will depend on the order book wins in [the second half of 2020], the level of activity and government support in aviation and rail, and the continuation of [coronavirus] work”.

Shares in Serco were down 9.7% at 153p in early trading.

Quick facts: Serco Group

Price: 128.5 GBX

LSE:SRP
Market: LSE
Market Cap: £1.58 billion
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