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 Highlights

  • Serco’s underlying operating profit for 1HFY24 decreased by 4.1% YoY, impacted by lower CMS revenue and immigration volumes
  • Despite challenges, Serco maintained a consistent 6.0% margin, exceeding expectations through productivity improvements
  • In January 2025, Serco acquired Northrop Grumman’s mission training and satellite software business for GBP 264 million
  • Serco secured a GBP 203 million contract with the US Army for H2F System support across 45 brigades
  • The company expects 2025 revenue to remain near GBP 4.8 billion

Serco Group PLC (LSE:SRP) is listed on the FTSE 250 index and offers a wide range of public services in sectors such as defense, justice, immigration, transport, healthcare, and citizen services.

In the first half of the financial year 2024 (H1FY24), Serco Group reported a decline in revenue, with total earnings of GBP 2,359 million, down 4.6% from GBP 2,472 million in H1FY23. The drop was primarily attributed to organic declines in lower CMS contract revenue and the exit from low-margin UK contracts. Currency effects reduced revenue by 2%, while acquisitions contributed an additional 2%. Despite these challenges, growth in the immigration, defense, and justice sectors partially offset declines in other areas.

The company's underlying operating profit saw a 4.1% YoY decrease, falling to GBP 142 million from GBP 148 million in H1FY23. The decline was mainly driven by reduced revenue from the new CMS contract, lower immigration volumes in Australia, and mobilisation costs for new projects.

Despite this, the result exceeded expectations of the company, supported by a focus on productivity and portfolio improvements, helping to maintain a 6.0% margin, consistent with the previous year.

Recent Business Update

In January 2025, Serco made two significant announcements. On January 30, the company revealed it would acquire Northrop Grumman’s mission training and satellite ground network software business for GBP 264 million. This acquisition is supposed to bolster Serco’s capabilities in US military training, software engineering, and satellite communications.

Further, Serco has secured a GBP 203 million contract with the US Army to support the Holistic Health and Fitness (H2F) System. The contract, which spans up to four years, will see Serco provide training support for 45 brigades across 15 locations, further expanding its footprint in the defense and military support services sector.

Company Outlook

Serco Group expects 2025 revenue to remain near GBP 4.8 billion, despite a GBP 330 million reduction from UK and Australian immigration contracts. Underlying operating profit is forecasted at GBP 260 million, with a 5.4% margin. Contract ramp-ups are expected to offset the challenges. The company is experiencing higher organic growth in US defense. Additionally, a growing pipeline of government contracts has made the company optimistic for future opportunities, even amid fiscal and geopolitical challenges.

Top 10 Shareholders

The top 10 shareholders of the company collectively hold approximately 41.65% of total shares. BlackRock Investment Management (UK) Ltd. holds the largest stake at around 6.15%, followed by Marathon-London with a 5.31% shareholding.

Stock Information

 The stock price of SRP has been appreciated by around 3.37% in the past week. However, the stock price has dropped by around 11.05% in the past three months. The stock’s 52-week high and low span from GBX 136.20 to GBX 196.40. As of 04 February 2025, the stock’s closing price is GBX 156.10.

Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference data for all price data, currency, technical indicators, support, and resistance levels is 04 February 2025. The reference data in this report has been partly sourced from EODHD/Others.