Insider: Banker and Churchill's grandson buy

Serco's Soames bets on further rally

Serco last month broke a habit of only publishing bad news to the surprise of pretty much everyone who follows the shares. Since 2013, the contractor has published a series of profits warnings, been found guilty of overcharging the government on an electronic tagging contract, temporarily banned from bidding for government contracts, lost its CEO and got away a £550 million rights issue.

Almost nine-tenths of its value has been wiped out in that time, and few expect much from the beleaguered firm. So imagine the shock when last week's trading update actually contained something for the bulls to grab hold of.

"Financial performance…has been stronger than we anticipated in the first four months of the year," it said. That's because successful contract negotiations will "sharply increase profits in the first half".

Full-year revenue forecasts are raised from £2.8 billion to £2.9 billion and underlying trading profit from £50 million to a better-than-expected minimum of £65 million. The currency gods are watching out for Serco, too. Foreign exchange fluctuations will benefit the bottom line this year.

Admittedly, these are one-offs; much of the improvement will not repeat next year, and chief executive Rupert Soames understands the challenges, and potential for upside:

"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. There remains much to do in order to complete our transformation this year and next, but we are continuing to make good progress on the roadmap we have set out through to 2020."

We noted last week that Serco shares had smashed through technical resistance at around 94p (see chart above), and quickly topped the 100p mark. Some investors might doubt the rally, but not Soames. Four weeks ahead of a last update before first-half results on 4 August, the boss has spent over £128,000 on120,000 Serco shares at 107p.

That can only be a good sign.

HSBC banker buys big

It's the highest-yielding bank around and first-quarter results were decent enough. Adjusted pre-tax profit exceeded consensus estimates by 11% due to cost and revenue beats. It's not had a great track record on costs which must be kept under control to offset pressure on the top line, so this was pleasing.

"Common equity tier 1 of 11.9% was a touch below expectations but capital generation is sufficient to deliver the promised dividend, we think," said Jason Napier at UBS.

That should reassure, too. The payout is a significant debating point at HSBC, and doubts about its ability to maintain the divi refuse to die down. Investors also want to see a trend of improving numbers before backing the Far East-focused bank.

"Trading at 0.8x [tangible net asset value] for a 9% forecast [return on tangible equity] and with a running dividend yield of 8.0% we think the share discounts a cut to payouts in the near term," adds Napier.

"We have HSBC trading at 10.2x and 9.2x 2016/2017 [earnings per share], in line with the European average. We think at this level a cut in dividends is discounted."

A month after first-quarter results and ahead of interims in August, international banker and HSBC non-executive director Joachim Faber has splashed out nearly £94,000 on a stake in the lender.

Faber, who used to run Allianz Global Investors and spent 14 years at Citigroup, snapped up 20,827 HSBC shares at 449.5p each.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.