Serco shares bounce as profit forecast is raised
The UK outsourcing giant Serco saw its share price surge following an optimistic profits forecast and the announcement of new defence contracts worth potentially £3.4 billion in total. So, what next for the Serco share price?
- The Serco share price rose to 142.3p when markets opened on 14 June
- The Serco share price is up 18.74% over the past 6 months
- The jump came amid a raised profits forecast of £200 million for 2021
- Serco also announced new contracts worth up to £3.4 billion
- Ready to trade the Serco share price? Open an account today
Why is the Serco Share Price Surging?
The UK outsourcing giant Serco was the FTSE 250's top riser when London markets opened on 14 June, with the Serco share price instantly jumping 4.4% to 142.3p. The surprise jump came after the company announced on the evening of 13 June that it would be revising its profits forecast for 2021 up by £15 million. Therefore, the company's total estimated profit for the year has risen to £200 million.
Much of this profit comes from Serco's role in administering the UK government's Covid-19 Test & Trace programme, which provided the company with billions of pounds in public funds. In addition, Serco announced that it had successfully applied for a new contract with the UK Ministry of Defence that could potentially be worth £3.4 billion over several years.
The contract, which it will share with the French energy conglomerate Engie (ENGIE.PA), will task Serco with running and maintaining 19,000 buildings across 200 sites for the MoD. All of this has helped boost the Serco share price to its highest level in over a month.
An Uncertain Future for Serco Shares?
Although markets reacted cheerily to Serco's raft of good news, the company is not necessarily out of the woods yet. The share price had tanked as recently as 1 June, after its biggest customer, the UK government, pulled a contract for running the UK Atomic Weapons Establishment earlier than expected, citing concerns over value for money.
The company also restored its year-end dividend at the end of 2020 after a full seven years of no dividends, due largely to a string of loss-making contracts. Furthermore, the UK's outsourcing industry has seen better days, with the collapse of Carillion and Interserve. The takeover and breakup of G4S by private equity firms also highlighted that Serco's recent optimism is the exception, not the rule.
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