Looking at their cash position Page 17 of link to their results above , they have had cash from a rights issue £530m and £184m from disposal of subsids. So cash in of £714m in 2015 from funding. Net debt improved by £605m, so still burning cash at over £100m per year. ( £714m-£605m ). Their EBITA covenent Page 18 is £209m so they have 2 years at that cash burn rate before another rights issue or cash call, crudely speaking, if they can't generate some cash operationally in that period. With more impairments, writedowns , onerous contracts and more exceptional items that will be difficult.
Shares in Serco (SRP) slumped yesterday after the outsourcing group said it expected revenue and trading profits to fall in 2016, but Liberum is sticking with its buy recommendation on the stock.
Analyst Joe Brent retained his 135p target price on the shares, as they fell 6.6% to 106.7p yesterday. Serco yesterday cautioned that 2016 trading profits were likely to fall to £50 million, from £95 million this year.
In March, management articulated its strategy for the business and it has made good progress on balance sheet, structure, management and problem contracts. The focus is now turning to pipeline, said Brent. The pipeline is still weak and will take time to build.
The shares may react negatively to [the] downgrade to 2016...However, while we reduce our base estimates, we believe that a 5-6% margin is increasingly achievable. The more pain now, the more likely this number becomes. "
When Algardish refers to "they" he changes who "they" are through his post. The "they" he accuses of lying for years are ex-directors who are no longer with the company. "They" are not the "they" who are now running the company.
The Government who think they have been ripped off have cleared the current company and awarded it contracts since the investigation was concluded.
He is also wrong when he says "more profitable" contracts have to be higher priced contracts. They could be lower priced but different specs, or the same price, same spec, managed more efficiently. This business has always been low margin, so the key to profitability is in the management of the contracts.
He also implies that the Government "wins" if they employ contractors who are losing money. Of course they don't. If the Government has contractors running its services in danger of going bust it is not good for the Government.
My first reaction was you could not have held shares for over 25 years, but I was surprised to see it was first listed in 1988. My knowledge of them came when they merged with IAL some time in the early 90s. This more than doubled the size of the business, and I had worked for IAL, which is where my interest arose. I did not think them became LSE listed till after the merger, but obviously I was wrong, so thanks for enlightening me,
Although Serco & WS Atkins are professional services firms, I would not really compare the two, though I hope the recovery potential is similar. Serco is a lower level of professional services (it has concentrated more and more on the cheaper services - e.g. refuse collection, security - end as it grew away from the IAL base of higher tech services - e.g. air traffic controllers & medical equipment maintenance) and tend to be for on -going services. WSA is more specialised one off or changing pieces of work.
A company changes with the personnel working for them, specially at the top end, and I am sure the bad blood who falsified the financial reporting have gone; and there is so much scrutiny on them now, that I think they would be stupid to mis-report things now, especially as they had the perfect opportunity to get all their dirty laundry aired and out in the open. If you have any faith in the LSE process for publication of data, you would have to believe the data coming out of Serco now.
I would be very careful. This is not a recovery play , it never was profitable, not in the last 10 years at least , they have been lying for many years even if they are just "down the road" and look pleasant enough. Soames has to create a new business model entirely because in the past it has not been profitable or at least at he level they say, they have been lying. And then deliver it. The Government thinks they have been ripped off , and have the evidence, and still they were not profitable. So Soames has an enormous task of creating a new business model and delivering, getting the government to sign up for more profitable contracts with Serco , i.e at higher prices . That is a heads Serco lose tails the Government wins situation created by dishonesty. It is not a recovery play in that if they go back to what they were, they will have to lie and cheat. http://www.telegraph.co.uk/finance/newsbysector/supportservices/12037798/Rupert-Soames-is-still-dodging-the-tomatoes-after-a-year-at-Serco.html
I've held this share on and off for over 25 years, and have made significant monies from this stock at different price levels. The share price is currently at a very low level, as a result of the issues /problems well documented. However, the organisation (their Head Office in Hook is about a half a mile from my home so I know many employees at varying managerial levels) and I have no doubts that it will recover in the medium /long-term.
The company I can best liken to Serco is W S Atkins, the huge world-wide engineering consultancy(biggest in the UK) when in 2002 it dropped to 12p. Do look at the latest price to see how Serco can /will similarly recover to. There is no doubt that the present level is a good buying-in opportunity, whereby investors can expect to realistically double their money within 2 - 4 years.
I'm not going to answer all the questions but they got into trouble falsifying invoices to the prison service. There was a ban on them bidding for any new government contracts and they gave up price rises on other public sector contracts to show good faith, while everything was looked into. There were also some rumours about prison guards being rough with inmates.
Full, very long investigation, Directors resigned, processes were tightened, and approved, and now there is no problem with bidding for Government Contracts.
The business works on very low margins, and I believe there was also some dodgy accounting bringing income from long contracts forward to make things look better.
What all this should mean is their processes, financial and operation should now be cleaner than clean.
Rupert Soames, the CEO did a good job with Aggreko and was brought in about a year ago? There was a wonderful article about him in Management Today a few years back - well worth reading - http://www.managementtoday.co.uk/features/1109846/the-mt-interview-rupert-soames He has set out his turn round strategy - and is now implementing it, selling off non-core businesses to reduce the debt. There was also a heavily dilutitive rights issue.
The recent update gave me some reassurance that they are on the right track.
The dividend is more than under threat it's been scrapped - which is the right thing to do when trying to reduce debt. I've never understood companies borrowing money just to pay shareholders.
Are the Directors any good? Don't know, but Rupert Soames is very well connected (as a grand son of Winston Churchill) and I am sure he can open doors within the public sector, which is their key target, in this country and in others. Also, with the purge a while back, if the large shareholders had any doubts about any of the directors, they would likely have gone.
Is it a good recovery play investment? Time will tell, but I'm optimistic, though I think it will be quite a long term recovery play.
One of the good things about the business is their contracts tend to be long term, so there is some excellent visibility of forward earnings.
I am currently considering Serco as a recovery play. Please if anyone can get me up to speed with its story, why the big write down, is the divi under threat, board members any good, how long has CEO been in place etc?/
Thanks in advance
<b><u>Jefferies Full Note This Morning.BUY TARGET 157p</b></u>
<b><i>We upgraded to Buy in September as we felt risk/reward had become
favourable. According to The Financial Times this contrarian call was very
brave but two months on, and ahead of a year end trading update, our
conviction is increasing. Headwinds have not fully abated, but the IMS will
highlight the significant progress made by new management in 2015.
FY16E attrition guidance could increase to £400m. Earlier this year, Serco guided to
£350m revenue attrition in FY16E. In our view, this could be revised to c£400m as the original
figure included £50m from Intelenet (which drops out as it will be sold before year end)
and the following contracts have been lost or lapse: US National Benefits Centre (£35-40m
annual revenue); Virginia Department of Transport (c£35m annual revenue, winding down
towards a May 2016 exit); complex cases child maintenance (£30m annual revenue which
runs off over three years as existing cases are resolved).
Disposal update. Judging by Blackstones recent financing activities the Intelenet
acquisition is on track to complete before year end. This leaves UK leisure/waste as Sercos
sole remaining non-core asset, but novating its contracts to individual legal entities could
take until mid-2016. Sercos balance sheet will have been de-risked by then, and we think its
turnaround will have a firmer footing so there may be a case for retaining this public sector
Positive cashflow developments. Serco recently reached a favourable agreement with
the Australian government to amend its contract to provide in-service support to Armidale
Boats. This is the largest component of the £447m onerous contract provision and resolving
loss makers would lead to material FCF upgrades. On recovered earnings, Serco has an 8%
Trimming LFL revenue assumptions; unchanged EPS. We now anticipate -8% and
+2% organic revenue growth in FY16E and FY17E, respectively (previously -5% and +3%)
due to higher attrition, but our EPS estimates remain unchanged for two reasons: 1) as we
highlighted in our September note, management feel more in control of cost efficiencies;
2) we assumed that UK leisure/waste would be sold in late 2015 but have reconsolidated
until any transaction is clearer.</b></i>
<b><u>Serco Group plc 41.4% Potential Upside Indicated by Jefferies International
Posted by: Ruth Bannister 1st December 2015</b></u>
Serco Group plc using EPIC/TICKER code LON:SRP had its stock rating noted as Reiterates with the recommendation being set at BUY today by analysts at Jefferies International. Serco Group plc are listed in the Industrials sector within UK Main Market. Jefferies International have set their target price at 157 GBX on its stock. This indicates the analyst now believes there is a potential upside of 41.4% from the opening price of 111 GBX. Over the last 30 and 90 trading days the company share price has increased 13 points and decreased 14 points respectively.
Serco Group plc LON:SRP has a 50 day moving average of 102.68 GBX and a 200 day moving average of 131.72 GBX. The 1 year high stock price is 188.8 GBX while the 52 week low is 89.48 GBX. There are currently 1,097,554,751 shares in issue with the average daily volume traded being 4,454,677. Market capitalisation for LON:SRP is £1,275,358,587 GBP.
Serco Group plc is a United Kingdom-based provider of public services. The Company operates through six segments: UK Central Government, UK & Europe Local & Regional Government, Americas, Asia Pacific, Middle East and Global Services, which provides BPO services across the globe.
<b>Serco Group plc (SRP) Given Buy Rating at Jefferies Group
December 1st, 2015 0 comments Filed Under by ABMN Staff</b>
Serco Group plc logoSerco Group plc (LON:SRP)s stock had its buy rating reiterated by Jefferies Group in a report issued on Tuesday, MarketBeat Ratings reports. They presently have a GBX 157 ($2.36) price objective on the stock. Jefferies Groups target price suggests a potential upside of 42.08% from the companys current price.
In other Serco Group plc news, insider Gardner,Roy A acquired 25,000 shares of the stock in a transaction dated Wednesday, November 18th. The stock was acquired at an average price of GBX 99 ($1.49) per share, with a total value of £24,750 ($37,234.84).
"Serco slumped after it was downgraded to a 'reduce' rating by analysts at HSBC, who said the government's proposed 'living wage' adds another tier of unknowns to the Serco story, and considerable risks to the margin upside."
"Jefferies relieved to see Serco sell India unit back to Blackstone
Jefferies analyst Kean Marden was pleased to hear that outsourcing firm Serco (SPP) had finally sold its business process outsourcing division, even if it was back to the US private equity giant from which it bought the business four years ago.
Chief executive Rupert Soames had been trying to offload the India-based operation since last year when he was appointed to turn around Serco and reduce its debts. He has reached an agreement with Blackstone which will buy the business for £250 million ($384 million), less than the $630 million it paid in 2011.
Retaining his buy recommendation and target price of 157p Marden said: This is in line with our estimates although £15 million transaction costs are slightly higher and a £35 million tax indemnity, which is uncertain and long duration, also reduces net proceeds.
Fortunately, UK progress (in exiting BPO activities) has been impressive and our estimate of £30 million exit costs could be £10-20 million too high. The update is positive as the balance sheet has now significantly de-levered and execution risks have subsided, he said.
Sorry FRTEB I can't help you with the lottery numbers, but I've seen this picture several times before - particularly when W S Atkins (the largest civils consulting engineer in the UK at the time) fell down to around 12p, now what price are they?
For all the negative news on their so-called 'bad loss-making contracts', and the recent write-offs, the strong likelihood in that SERCO will in the future be able to renew many of their coming to-an-end term contracts, and also add new significant contracts, as their size, experience, and lack of genuine competition in several areas, will all have an effect.
Overall, whilst it may be a slow road forward, the company (and therefore the share price) will with out doubt advance positively over the coming months.
It probably doesnt help, but the interview I heard clearly stated it wouldn't matter who was running it, the fault is wider than that.
But we must accept reputation takes a while to rebuild, and media will take every opportunity, despite the main areas of criticism raised by the HMCIP concern policy or individual decisions to detain which are made by the Home Office, and the healthcare provided at the centre by NHS England and their contractor G4S.
So here we sit, waiting for that recovery to start, could be a long wait though
More bad news about Yarl's Wood from the latest inspection report. The Home Office may well carry most of the responsibility but I can't help but think that Serco is incurring reputational damage and would probably be better off out of this contract.
"Bank of America Merrill Lynch has maintained its 'neutral' rating on troubled outsourcing group Serco after the group posted a first-half pre-tax loss of £76.2m.
The broker warned that although the group's Compass asylum detention centre operation benefited from lower UK asylum numbers, the ongoing migrant crisis in Calais, where immigrants are trying to enter the UK, "warrant caution" for the second half.
Merrill also noted Serco's "slightly fuzzy caveat" that risks associated with full-year guidance are now weighted to the upside.
"Revenues and profits will continue to be under pressure in 2016 as previously indicated, and the company has now given some more guidance on this," the broker said in a note.
"We leave our trading profit forecasts broadly unchanged for 2015 (£92.5m), although we trim our revenue forecasts for 2016 earnings by (around) 4% to reflect the increased disclosure on the revenues up for rebid and timing of new contract opportunities. We also take our 2016 trading profit down by (around) 2%."
RBC Capital Markets, meanwhile, said 2016 would be the key year for the group.
"There is slightly more detail on 2016 revenues, where known attrition will reduce revenues by £350m and there are another 60 contracts to be rebid between now and 2017, with aggregate annualised revs of £140m for the remainder of 2014, £340m in 2016, and £360m in 2017," the broker said.
"Hence there is a significant risk that revenues could be well below consensus of £3,325m for 2016 and 2017. Management will update on 2016 guidance at the full year." "
Better-than-expected half-year results at Serco (SRP) boosted the outsourcers share price yesterday but there is slow progress on the sale of its business process outsourcing (BPO) arm, said Liberum analyst Joe Brent.
Brent retained his hold recommendation and target price of 135p after Serco reiterated its earlier forecast of full-year revenue of £3.5 billion and trading profits of around £90 million.
This was good news for a company that tapped shareholders for £500 million in March after a disastrous year of contractual problems that angered the government, its biggest customer.
Brent said the interim result guides to a little better and trading a little better. Despite signing £1 billion of new contracts, Sercos focus has been on securing existing relationships, the analyst said.
We estimate the order book has reduced from £12.6 billion at full-year 2014 to £11.9 billion, given the £1.7 billion of order burn, he said.
The main issue is the disposal of its BPO division, with Indian press reporting that buyer Blackstone has dropped out of the deal, leaving CVC Capital Partners as frontrunners.
Serco shares rose 7.7p or 6.5% to 125.7p. They have fallen nearly 22% this year and lost two thirds of their value in the past year."
"Serco's stock was extending gains on Wednesday after a well-received first-half trading update the day before, with Numis Securities providing a further boost by upgrading its recommendation from 'reduce' to 'hold'.
Numis said Serco revelations that first-half trading had been a little better than expected, was "encouraging".
The broker highlighted the company's strong contract renewal rate, with £800m of the £1bn contracts won during the period being re-bids of extensions.
The broker kept a 130p target on the stock, which was up a further 0.6% at 126.4p on Thursday morning."
"LSE:SRP:Serco has been a spectacularly poor performer over the past two years. In that time, a series of profits warnings, scandals and a huge cash call has wiped out over 80% of the company's valuation. Shareholders have been watching closely ..."
Outsourcing group Serco saw its shares soar more than 8% higher yesterday after touching a 12-year low at the end of last week, so is now the time to buy? When Mr Soames took control, he issued a bring out your dead call for management to review all the troubled contracts, which led to an annual pretax loss of £1.35 billion. Serco acquired Indian-outsourced accountant and call centre business Intelenet in 2011 in an attempt to diversify away from its core U.K. defence market and into the emerging markets private sector. The company paid a premium, splashing out up to $630 million (£385 million) to buy the business from private equity Owner Blackstone.
Sercos shares have tumbled from a peak of 558p in July 2013 to just 117p on Friday last week, in the process dumping the company out of the FTSE 100 index. The shares also pay no dividend and debts will continue to rise even though the rescue rights issue went some way to plugging the gaps.
The cash raised from selling the Intelenet business would have been useful so any cut-price deal would be a blow. We said Serco was a classic falling knife share at 362p in July last year, and reiterated our advice to avoid the shares at 183.7p on March 12. We need to see some more stable profit figures before changing our view.
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