Serco sees full-year profit ahead of market expectations

Shares in Serco surged on Wednesday after the FTSE 250 outsourcing company said it expects underlying trading profit for 2016 to be ahead of current market forecasts following a stronger-than-anticipated start to the year.

The company said the first four months of the year had been strong in large part thanks to the successful outcome of a number of commercial negotiations, adding that the nature of most of the items driving the stronger performance is that they will sharply increase profits in the first half, but will not repeat in subsequent periods.

Serco said several contract that were due to end early in the year have run on longer, while other contracts have turned out to be more profitable than expected.

It now sees revenue of around £2.9bn and underlying trading profit of no less than £65m versus a previous forecast of £2.8bn and £50m, respectively. However, it said the outcome will depend on many factors over the balance of the year.

Chief executive Rupert Soames said: “"It is encouraging that we are able to announce an upgrade to our guidance for the year, albeit that much of this improvement comes from items that will not recur.

“We must remain cognisant that, with underlying margins currently around 2%, our profits are a sliver of reward between two very large numbers - revenue and costs - tiny percentage movements in which can lead to large percentage movements in profits.”

At 0825 BST, Serco shares were up 7.3% to 98.20p.