Support services firm Serco (SRP) gained 1.6% to 135.9p as it stuck with its 2021 forecasts and issued 2022 guidance in line with analysts’ consensus estimates.
The company updated the market ahead of a capital markets day at which it will outline expectations to deliver revenue growth of 4% to 6% from 2022 onwards, improve its margins by as much as 1% to 6% and convert at least 80% of its operating profit into cash.
Thanks to an improved balance sheet it also expects the ratio at which dividends are covered by earnings to reduce from four times to three times – implying strong dividend growth.
Serco specialises in the delivery of essential public services, with more than 50,000 employees worldwide working in areas like defence, transport, prisons, healthcare and immigration.
Discussing its targets the company said: ‘This combination will, we believe, allow us to deliver a compelling combination of revenues growing faster than the market, profits growing faster than revenues, and returns to shareholders growing faster than profits.’
Serco reiterated previous warnings about a significant unwinding in Covid-19 related work in the first half of 2022.
Shore Capital analyst Robin Speakman said: ‘In this morning’s release, Serco outlines the strategic progress made in the past several years as the business has been fundamentally re-engineered. We concur with the management team over the progress made, noting that this group has a very different operational profile to just a few years ago.
‘We note the indication of dividend cover reduction in particular, seeing this as a sign of medium-term confidence. Post pandemic trading conditions are now set to normalise through 2022, with new contracts and opportunities ameliorating the super-normal effects of Covid.’