Today’s Mid-Cap Winner: Serco Group plc Up 6% As It Faces Down Challenges

A poor first half for Serco Group plc (LON: SRP) underlines how many strides the firm still has to make.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 12 August, 2014 11:19 am BST

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Serco (LSE: SRP), the troubled outsourcing group, reported a 59% drop in operating profit in the six months to 30 June, while margins reduced to 2.1% from 5.7% a year earlier.

Since July 2013, when Serco was given a six month ban on securing new government work, the share price has fallen by around 45%.

The chief executive, Rupert Soames, lamented not winning as many new contracts as they would have liked, and there is still a way to go before the firm rebuilds its reputation.

“I am confident that, in time, we can restore the Company’s fortunes,” Soames said.

The market was cheered in early trade after the appointment of Angus Cockburn, whom Mr Soames worked with for 11 years at Aggreko, as chief financial officer.

Serco shares rose over 6% on the news in early trade.

Serco’s 2014 guidance has been maintained, with revenue at around £4.8bn (excluding currency) expected, which would imply a revenue decline of around 10% in the second half due to contract losses and volume reductions.

Serco strengthened its balance sheet through an equity placing and this, together with improved free cash flow generation, reduced net debt to £559m from £732m.

The interim dividend was maintained at 3.1p per share.