Serco still struggling

The company’s fourth-quarter figures are unlikely to give much festive cheer. 

A Serco-operated train
Source: Bloomberg

Although Friday will see Serco publish its fourth-quarter figures, it is the company’s annual report – for the year ending 31 December 2014 – that will be of more interest. The annual figures will not make pleasant reading as the adjusted earnings per share is set to drop from £0.321 down to £0.145, and sales are also set to fall from £5.144 billion down to £4.737 billion. All of this will see last year’s pretax profit of £106.6 million turned into a £11.931 million loss for the year.

The year has seen the company’s reputation seriously tarnished after a string of scandals, and the arrival of a CEO with Rupert Soames's reputation has done little to stem the selloff in shares. The company will be looking to complete a review of its operational workings and, once completed, will embark on a fundraising drive to acquire £550 million by March next year. This will not be easy as investors have already had their patience and tolerance tested, and will not easily part with further funds without good reason. The last year-and-a-half has seen the company’s share price wipe out over a decade’s worth of gains, and has taken it back to levels not seen in 2003.

It is difficult to believe that corners have been turned just yet, without the review and fundraising complete. Of the 22 institutional analysts that cover the stock, 13 are hold ratings and 9 are sells, while none have the company down as a buy. The average price target between them is 188p, some 15p above the current levels, but it is still likely to get worse before it gets better.

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