Financial Trading Blog
Stock of the day 29/06/2016 – Serco Group PLC
After 2 and a half years of near uninterrupted decline things showed no real sign of slowing down for Serco as 2016 got underway, the stock falling from a starting price of £0.94 to £0.76 by the middle of February (bear in mind the company had hit a high of £6.80 halfway through 2013). That all changed, however, on February 25th, as Serco revealed its full year results.
Surging 16% on the day, and another 13% in the days that followed, Serco posted a 93% reduction in its full year losses to £69.4 million, with operating costs dropping £330 million. This news helped overcome a number of setbacks elsewhere: revenue plunged by 12% to £3.16 billion, with Serco warning that the decline should continue into 2016, falling to £2.8 billion by the end of the fiscal year.
(Source: IT-Finance.com 29/06/2016)
While Serco saw a remarkable rise after its full year report, hitting £1.08 for the first time since the previous December, it couldn’t hold onto this 2016 high for long, the stock gradually slipping back to £0.91 towards the end of May. Yet once again Serco was lifted by a trading statement, this time one that was far less caveat-filled than the update in February.
For 2016 Serco now expects its underlying trading profit to come in at £65 million, a notable improvement on the £50 million guidance given earlier in the year. The company’s revenue is also now expected to be better than initially thought, Serco aiming for £2.9, rather than £2.8, billion. The reason for the revisions was Serco’s recent contract successes, with the likes of its Virginia Transport and US army transition assistant deals running beyond their allotted periods.
This news led Serco to climb beyond its post-February update high, the stock rising to £1.17 by the middle of June. Of course, since then things have become far choppier, the Brexit referendum results eroding much of the company’s recent gains. Serco Group sits at a current trading price of £1.05 (IT-Finance.com, 29/06/2016).
In terms of Thursday’s half year trading update, which comes before the company’s next earnings release at the start of August, investors will be looking for confirmation of Serco’s recent upward revisions, as well as news of any fresh contracts.
Serco Group PLC has a consensus rating of ‘Hold’ with an average target price of £1.09.
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