News

Serco may leave investors hanging whilst COVID tracing make headlines

December 16, 2020

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Serco Group PLC (LON:SRP), the outsourcing group that is running large parts of the UK government’s coronavirus (COVID-19) test-and-trace and virus testing services, is releasing a pre-close update on Thursday where investors will be eager to see management’s outlook for the new year.

However, the outsourcer previously complained that despite its many ongoing contracts, the current crisis continues to make things difficult.

The uncertainties of 2020 are expected to persist into 2021.

Last month, the Ministry of Defence confirmed that the Atomic Weapons Establishment (AWE) contract, which has been managed by a consortium including Serco and US defence giants Lockheed Martin and Jacobs since the turn of the millennium, will return to state control from June 30, 2021.

Back in October, Serco upgraded its full-year guidance to revenue of around GBP3.9bn and an underlying trading profit of GBP160mln-GBP165mln, after enjoying strong revenue growth and clamping down on costs, even going so far as to say it may restart dividend payments.

Negative interest rates loom

The Bank of England‘s Monetary Policy Committee (MPC) is due to share the fruits of its deliberations on Thursday, though most reckon no major changes are imminent.

At its last meeting in early November, the MPC voted 9-0 to keep interest rates unchanged at 0.1% and to increase quantitative easing by GBP150bn to GBP895bn.

If a change was to come, it would be in the direction of negative interest rates, which will pose a dilemma for investors.

“Investors are clearly worried about the impact negative interest rates could have on their portfolios,” said Jamie Johnson, FJP Investment chief executive.

“While the Bank of England is yet to play this card, there remains a great deal of speculation that negative rates could be around the corner.

“If COVID-19 cases cannot be brought under control and strict lockdown measures remain, the recovery of the UK economy is going to be significantly hindered. In such a situation, we could expect negative interest rates to come into play sooner rather than later.”