Shares in outsourcing firm Serco (SRP), which have had a torrid few months after its decision to withhold dividends and its test and trace system came in for widespread criticism, surged 13% to 133.6p as the company released an unscheduled trading update, raising its full year sales and earnings targets.

Thanks to strong revenue growth in the third quarter and continued cost control, the firm lifted its revenue forecast from £3.7 billion to £3.9 billion, an increase of 15% on last year on a like-for-like basis. Serco also raised its underlying trading profit forecast from a range of £135 million to £150 million to a range of £160 million to £165 million, an increase of 30% on last year.

It cautioned that ‘the range of outcomes around these numbers, up or down, is wider than would normally be the case at this time of year as on some contracts customers are adjusting their requirements week-by-week in response to the challenges of Covid-19’, but added that all of its regions worldwide were performing better than hoped.

In the US, Serco operates flagship contracts for the Centre for Medicare and Medicaid Services, the Federal Emergency management Agency and the US Navy.

In the UK, the NHS Test and Trace contract has been extended, as has the emergency measures agreement on Caledonian Sleepers, and the new £800 million 10-year Prisoner Escorting contract began on schedule in August.

Regarding Test and Trace, the firm stressed its involvement was limited to running a quarter of the fixed and mobile testing sites, and tracing people identified by the NHS as having been in contact with persons who have tested positive. It has no involvement in the development or management of the programme, the NHS app, the IT system, testing labs, provision of test kits, booking of tests or identifying those who test positive.

As to the outlook for 2021, the firm has only just begun its budget review process and hasn’t changed its view since the half-year results in August: while the pandemic will bring significant short term disruption and risk, in the long term ‘more will stay the same than will change’.

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Issue Date: 16 Oct 2020