Shares in outsourcing firms Capita (CPI), G4S (GFS) and Serco (SRP) are among the biggest gainers following the landslide Conservative election victory.

Not only has the threat of a Labour government evaporated, taking with it the prospect of a ban on outsourcing deals, the new administration is set to increase public spending next year to spur growth.

Shares in Capita touched a 12-month high of 180p, up 12.5%, while G4S shares traded up 5.8% to 220p. Serco shares also went close to four-year highs, rallying 12.7% to 165p.

LOOSENING THE PURSE STRINGS

Labour had promised to ‘re-write the rules of the economy’, nationalising many public services such as rail transport and power networks, as well as ‘ending the current presumption in favour of outsourcing’.

However, Labour and the Conservative party both committed themselves to end ‘austerity’ and increase the level of government spending to gross domestic product (GDP) to above the average of the last 50 years.

As well as favouring construction firms and contractors, increased public spending should help the beleaguered outsourcers who have struggled in recent years as the government has delayed contracts and extended its payment terms.

SERCO RETURNS TO GROWTH

Yesterday Serco, led by the inimitable Rupert Soames, raised its full-year sales and earnings estimates thanks to better organic growth and a strong performance from its recent US naval acquisition.

Revenues for the year to the end of December are seen rising 14% to £3.2bn instead of £3bn forecast at the time of the half-year results in July.

Half of the increase is expected to be organic growth, with another 5% coming from acquisitions – mainly the purchase of US submarine design and engineering firm NSBU in August – and 2% from favourable currency movements.

Orders hit a record of $5bn making 2019 the third year in a row in which orders have exceeded revenues. The current order-to-revenue or ‘book-to-bill’ ratio is over 150%.

The UK ‘delivered a good performance' according to Soames, returning to organic growth in the second half for the first time since 2013.

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Issue Date: 13 Dec 2019