Shares in outsourcer Serco (SRP) surged 16% to 155p after the firm reinstated its full year earnings guidance in an unscheduled trading update.

The company brought forward its closed period update ‘as a consequence of the board reviewing the latest management forecasts and determining that it is in a position to reinstate guidance for the 2020 financial year.’

The stock exchange requires firms to make an announcement if they are in possession of information which could materially impact the share price, such as earnings which are much better or worse than forecasts.

MARKET EXPECTS

In Serco’s case, first half trading profits are expected to be between £75m and £80m, or 50% higher than last year, on revenues up 23% to £1.8bn, as losses in some parts of the group have been largely offset by additional work in other parts.

The firm also said that, despite ‘significant operational challenges as a result of Covid-19’, the actual financial impact of the crisis on its operations had been limited.

2019 HARD GRAFT PAYS OFF

Much of the growth in revenues and earnings has come from businesses outside the UK and is due to contracts won last year.

The acquisition of the US Naval Systems Business Unit from Alion completed last August looks increasingly inspired, as the unit continues to generate significant volumes of work for the firm.

Serco took in £1.8bn of new orders in the first half, taking its book to bill or orders to sales ratio to around 100%. Orders included the contract to continue operating the Northern Isles Ferry Service for £450m, the Fiona Stanley Hospital contract extension for £370m and the Gatwick Immigration Removal Centre for £200m.

Chief executive Rupert Soames admitted there was ‘a more than normal degree of risk’ in the firm’s full year guidance, but felt it was ‘better that we give some indication rather than none.’

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Issue Date: 17 Jun 2020