Serco Group confirms profits to soar helped by Test and Trace contract

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Serco Group PLC (LON:SRP), the company running large sections of the UK government’s heavily criticised COVID-19 test and trace scheme, confirmed it expects profits to grow strongly in 2020.


Revenues and margins generated by support for work on UK NHS Test & Trace had helped the FTSE 250 group to be a net gainer during the crisis, it said, with increased ‘citizen services’ and immigration work for the government also offsetting downturns in transport and leisure and higher costs in prisons and healthcare.


Serco added it is to pay a bonus of GBP5mln or GBP100 each to staff for their efforts over the past year, while some GBP3m in furlough payments will be returned to the government along with GBP38m in deferred taxes.


For the year to end December 2020, revenues are expected to rise by 19% to GBP3.9bn, which is in line with previous forecasts and reflects organic growth of 16% while underlying trading profits are forecast to increase by 35% to between GBP160-165mln, again in line with previous guidance.


Cashflow has also been strong, said the group, with adjusted net debt expected to be less than GBP100mln at the year-end with ample liquidity, but there was no restoration of the dividend due to the uncertainty over the second wave COVID-19 infections.


The initial outlook for 2021 currently is for revenue and underlying profits to be slightly higher than 2020, Serco added, reflecting a similar performance for the existing business and a small increase from the acquisition of Facilities First in Australia announced today.


Rupert Soames, chief executive, said: “The overall outcome is a robust business performance in 2020, ahead of the expectations we had at the beginning of the year.”


Separately, Serco also announced the acquisition of Facilities First in Australia for A$76.5mln (GBP43mln) and success in its rebid for the contract to run Acacia Prison also in Australia.


That contract is worth A$445mln (GBP250mln) for an initial five-year term and up to A$1.4bn if it runs for the full fifteen years.


Serco also announced the retirement of chief financial officer Angus Cockburn who will be replaced by Nigel Crossley.


Broker Peel Hunt said it believes Serco will ’emerge from Covid-19 in a stronger competitive position, with an enhanced reputation with its customers, its operational capacity and capability intact and a strong balance sheet and order book’.


The broker has a buy rating and 162p price target.


Shares rose 3.5% to 124.2p.




— adds broker comment, share price —

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