Serco sees 2019 revenue at top end of guidance

FTSE 250 outsourcer Serco said on Thursday that 2019 revenue is expected to be at the top end of its guidance range, thanks in part to strong order intake.

revenue for the full year is set to be around the top of Serco's guidance range of between £2.9bn and £3bn, while underlying trading profit guidance was maintained at around £105m.

Chief executive Rupert Soames said: "Following a strong 2018, which marked an inflection point for Serco after several years of decline, we expect to report another good performance in the first half of 2019.

"The revenue growth seen in the second half of 2018 has continued, and profits and margins are both well up on the first half of last year. Order intake in the first half of this year has been very strong at over £3bn, already exceeding our revenue forecast for the whole of 2019. "

He pointed to "strong" revenue growth in North America and Asia Pacific and improved trading in its UK division, thanks to the benefit of the Carillion health facilities management acquisition completed last year.

For the first half of 2019, the group expects to report revenue of around £1.5bn and underlying trading profit of £50m. Serco said its order intake has been "extremely strong", driven by the signing of £1.9bn of contracts for asylum accommodation and support services in the UK and £0.6bn for defence healthcare provision in Australia.

At 0920 BST, the shares were up 5% at 142.44p.

Russ Mould, investment director at AJ Bell, said: "The latest update represents a significant achievement when you consider the dire position Soames inherited. However, a strategy of growth for its own sake is not a healthy one and investors must hope further opportunistic M&A activity is balanced against the need to not over-extend the balance sheet.

"Frequent acquisitions can be a danger sign. Deals are just as likely to destroy as to create shareholder value as the costs of integration are often underestimated, the potential benefits are overestimated, or management fail to acknowledge the impact of cultural differences.

"In this context Babcock’s rebuttal of Serco’s merger proposal earlier this year may prove to be a blessing in disguise.

"It is also worth considering the structural, regulatory and political risks facing outsourcing firms, particularly ones like Serco which are heavily exposed to public spending."