nk1999- I would also add Capita to the list of of collapses. My point is they (Support Services) are flogging a dead horse because where the government is involved as soon as they see a supplier making a good return they want some of it back. Soames says he makes wafer thin margins, that in basic double entry book keeping means a low net asset value increase over time and therefore a low valuation . He is never going to turn the margins around by choosing government contracts as a business model. Its a schoolboy error admitting to analysts that Margins are wafer thin. It means there will be no cash to pay dividends in future and a low net asset value. The whole business model does not work in my opinion. It works for him in that he gets a good salary for a few years but he is more ambitious than that I think. I see the share price remaining flat for years unless he starts pumping things up by lying about the future (as per list of support services companies) and creating intangibles by over declaring future revenue. I do note that Intangibles are growing in SRP and cash is declining so he may be dabbling in it?! I think his only option is to find a better horse to back. Analysts look at balance sheets now and can short companies - hence Carillion - and can see things that others can't and don't just look at profits which can be fiddled easily. Serco is one of them. So I don't think SRP will grow at all and investors may lose patience eventually.
So we have had Interserve collapse by 50% , Carillion collapse by a lot, Mitie a rollercoaster and Serco stuck where it is. Mr Soames tells us that he has wafer thin Margins (repeatedly), they all do in support services , not surprisingly. Wafer Thin Margins means wafer thin profits means wafer thin balance sheet which means wafer thin valuation. There's is no escaping it, the share price is going nowhere. The accountants (FD's) fiddle with the revenue recognition and over declare profits then sell their shares, then announce a profit warning . They are all doing it or have done it. Building up intangibles in the balance sheet then writing them down once they have taken their profits.
Its time Mr Soames stopped wasting his time and investors money and got himself into something with better margins. He has made a big mistake pinning his career on this and sticking with it. I don't think he will be there much longer, as he has given himself mission impossible. Making money out the Government is not easy. Anyone for Mr Corbyn as PM?!
"Serco surged on Thursday after UBS upgraded its stance on the stock as it said it was turning positive on the UK outsourcing sector following a 50% underperformance since 2013.
UBS said 2018 is likely to be "a major inflection point", with growing earnings momentum expected to drive a recovery.
"After companies spent five years on cultural transformation, 2018 could see the start of a multi-year structural, but disciplined, expansion in outsourcing. This recovery story is priced in to differing degrees and so we are selective: we upgrade Serco to buy as our key way to play this theme," it said.
Serco was bumped up from 'neutral', with the price target lifted to 145p from 125p, as UBS downgraded G4S to 'neutral' from 'buy', cutting the price target to 300p from 355p.
The bank said it sees an attractive risk/reward in Serco, with a strong sales pipeline and margin recovery secure. "Execution on turnarounds can drive a sustainable profit recovery that is not priced in at current valuations," it said."
"Serco (LSE:SRP)With both grand-daughters "enjoying" their obligatory bout of childhood Chicken Pox, it was easy to find inspiration for LSE:SRP:Serco due to our habit of circling manipulation drops with red circles.Perhaps that's why Serco has ..."
" SERCO GROUP (LSE:SRP) With both grand-daughters "enjoying" their obligatory bout of childhood Chicken Pox, it was easy to find inspiration for Serco due to our habit of circling manipulation drops with red circles. Perhaps that's why Serco ..."
Relax, have a cigar...around a year ago I posted here that they would drop to below £1, they went down to 70p, that was time to buy bucket loads. Don't worry, Serco will get to £3+ in 18 months time, therefore today's price is a good buy. 13/02/17
Serco Plc (SRP.L) has been named preferred bidder for a 20-year contract worth about A$2.6 billion (1.6 billion pounds) to operate what will be Australia's largest correctional facility, the British outsourcing firm said on Thursday.
This is the group's largest contract win since 2012 and is one of six "elephants" sitting within Serco's bid pipeline," said Jefferies analyst Kean Marden, who holds a "buy" rating on the stock.
Serco Group plc (SRP) Receives Buy Rating from Jefferies Group LLC
Jefferies Group LLC restated their buy rating on shares of Serco Group plc (LON:SRP) in a research report released on Friday morning. The firm currently has a GBX 168 ($2.09) target price on the stock.
Serco Group plc currently has a consensus rating of Hold and a consensus target price of GBX 134.33 ($1.67)
I'm not sure I go along with "wild swings to loss when revenues drop" as I don't think this is the nature of the support services sector at all. Nearly all the cost components (including TUPE details if applicable) are known about at the point of bid. I don't think very much of this is pure high-risk P&L at all. Which is why the margins are so low.
The sector is suffering from the fall in popularity of PFA/PPI contracts where the Government was able to shift a major part of its public balance sheet to the private sector for a period of decades, voters not being smart enough to understand the complexities, and contracting companies had plenty of leeway to smoke up (i.e. tell lies) about their future income streams.
Both parties have been found out now and lots of Serco's competitors (MITIE et al..) have been suffering as well. But there are not that many companies in the game, they can't afford to "buy" new contracts any more by contracting at unrealistic margins, and the public sector is going to have to get used to paying more because they won't have any alternative. SERCO has been around a long, long, time and over the next few years (not now!) the share price may start to fly iMO....Here's hoping!
Dear algardish, last February , you said "would not touch them with a barge pole", since then Serco shot up from around 90 pence to 150, making me a dry large quick profit. What you have said in today's post is correct, but less than half the story. My advice is buy today at 117 and here we go again....kerching!
At least Soames seems to be telling the truth when things are not going well, unlike the previous lot. But that truth is: wafer thin margins (wild swings to loss if revenue drops), governments extending loss making contracts because they can, Serco taking all the risk in the contracts, the Government none or little. Prison contracts not a good future revenue stream (recent documentaries). Trump ending Obamacare where SRP thought they were onto a good future revenue stream. Contract rebidding in 2018 40% I think so more uncertainty. The decision to get out of all Non Government business when now it is the Government shafting Serco with risk not the other way round as was thought a few years ago. Sold Intelenet in India in 2015 to Blackstone - bad decision!
Add to that Brexit uncertainty,(no immigrants to recruit) Living wage costs increasing......
I cant see where the growth phase he talks about is coming from. Nor when he will mention dividend payments restarting.
Valuation 33 times earnings- I dont think so!
Its a sell and the market realises that.= future price drop
Relax, have a cigar...around a year ago I posted here that they would drop to below £1, they went down to 70p, that was time to buy bucket loads. Don't worry, Serco will get to £3+ in 18 months time, therefore today's price is a good buy.
Share price drop overdone IMO - progress was never going to be linear, and with their prior history all bad news is sure to be sent straight to the bottom line, no fun and games like some of their sector competitors....
"Serco shows renewed health as turnaround plan lifts profits and cuts debt:
After a strong 2016 support services group Serco is slowly rehabilitating itself. Fresh progress toward Chief executive Rupert Soames revenue growth and profit margin targets could lead to further share price gains for patient investors.
According to analysts forecasts sales may have bottomed last year at around £3billion and, although only minor improvements are expected in 2017 on the revenue front, profits are already on the rise. Return on sales reached 3.3% at the first-half results, on an underlying basis.
Decembers 10-year framework contract from the Barts Health NHS Trust suggests the company may finally be emerging from the Governments doghouse after the criminal tagging overcharging fiasco. Further big deals would be a further assertion of Sercos return to health. However, President Donald Trumps plans to repeal and replace Americas Affordable Care Act, or ObamaCare, must be watched, as Serco does work for the scheme.
Finally, net borrowing fell to just £120 million at the end of the first half compared with £682 million when Mr. Soames took over, owing to 2015s rights issue and the self-help programme. Serco is not without its risks and the profit targets may only be met in two to three years time but Serco looks to be on the way back. Questor says Buy."
(with Serco at 145.7p)
"Serco rallies - against the punditsI started getting interested in LSE:SRP:Serco last summer when the company was on the receiving end of much bad press, which intensified the deeper the shares traversed its long-term bear trend.The list of ..."
Serco swings to H1 pretax profit as revenue falls
By StockMarketWire | Thu, 4th August 2016 - 09:51
Serco has swung to an H1 pretax profit of £58.1m, from a year-earlier loss of £16.0m due mostly to exceptional finance costs of £32.8m. Revenue slipped to £1.5bn, from £1.6bn.
CEO Rupert Soames said the H1 performance was better than we expected.
"Although much of the improvement came from items that will not recur, it reflects the result of a lot of hard work and successful resolution of a number of commercial issues,2 he said in a statement.
"Since our last update in May, our trading performance and cost savings are tracking slightly ahead of plan, and recent foreign exchange movements have increased the value in sterling of our overseas earnings.
"Accordingly, we are increasing our profit guidance for 2016, although it is important to note that our view of the outlook for 2017 is not materially changed, other than adjusting for foreign currency movements.
"Whilst we expect to see potholes on the way, we are making good progress on the implementation of our strategy, underlined by our growing pipeline of new bids.
"We have removed some £550m from our operating costs, and at the same time we have been investing in our infrastructure, processes and capability and have recently rolled out significant improvements in our HR, finance and purchasing systems."
At 9:51am: (LON:SRP) Serco Group PLC share price was +15.3p at 134p
I agree I think Rupert Soames is doing a good job, and the turn round is heading in the right direction, but most of the improvement in figures are down to one offs which won't be repeated, so longer term there was not that much to get excited about. They did say the transition is slightly ahead of plan, which is good; but I didn't think that update merited such a large rise.
"There has rarely been a more reviled company in UK corporate history than LSE:SRP:Serco, the massive outsourcing operation. Its tentacles stretch into operating prisons, air-traffic centres, train lines and government defence contracts, asylum ..."
"Finally! LSE:SRP:Serco has published good news, with promising contract progress and deferred costs forcing a profits upgrade for 2016. A wave of buyers triggered a chart breakout, sending shares in the British outsourcer through the crucial 100p ..."
Liberum believes shares in outsourcing company Serco (SRP) could double over the next three-to-four years as chief executive Rupert Soames implements his turnaround plan.
Analyst Joe Brent rates the shares a buy with a 135p target price. Serco jumped 9.1% yesterday after the company posted a trading profit ahead of guidance and cut a chunk out of its debt.
Rupert Soames paraphrases Von Moltke that the plan has survived the first contact with the enemy, said Brent.
Profit was in line, but free cash flow, but free cash flow, onerous contract provision and net debt were better. We leave our [earnings estimates] unchanged, recognising it is a little ahead of guidance.
We believe the shares could double over three-to-four years. As another great leader said, If you are going through hell, keep going.
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. "
Important message from the Financial Conduct Authority:
Posting inside information that is not public knowledge, or information that is false or misleading, may constitute market abuse.
This could lead to an unlimited fine and up to seven years in prison.
If you have any information, concerns or queries about market abuse, click here.
The content of the messages posted represents the opinions of the author, and does not represent the opinions of Interactive Investor Trading Limited or its affiliates and has not been approved or issued by Interactive Investor Trading Limited.
You should be aware that the other participants of the above discussion group are strangers to you and may make statements which may be misleading, deceptive or wrong.
Please remember that the value of investments or income from them may go down as well as up and that the past performance of an investment is not a guide to its performance in the future.
The discussion boards on this site are intended to be an information sharing forum and is not intended to address your particular requirements.
Whilst information provided on them can help with your investment research you need to consider carefully whether you should make (or refraining from making) investment or other decisions based on what you see without doing further research on investments you are interested in.
Participating in this forum cannot be a substitute for obtaining advice from an appropriate expert independent adviser who takes into account your circumstances and specific investment needs in selected investments that are appropriate for you.